Reader's Digest going-concern status in jeopardy

By Caroline Salls

Pittsburgh, Feb. 13 - The Reader's Digest Association, Inc. said it may not be able to generate enough earnings or have sufficient liquidity to continue to operate as a going concern, given the current global recessionary environment, according to a 10-Q filed with the Securities and Exchange Commission.

The company said the extreme volatility in the global financial, foreign exchange and credit markets has compounded the situation, further impacting customer orders and normal seasonality trends.

Reader's Digest said these factors are impacting its ability to accurately forecast performance results and cash position.

If the company's operating performance declines and it is unable to secure any necessary default waivers from its senior secured lenders, Reader's Digest said it could be forced into bankruptcy or liquidation.

According to the 10-Q, the company's primary source of liquidity is cash flows generated from operating activities, and its revolving credit facility and local lines of credit provide additional liquidity.

Reader's Digest said its cash and cash equivalents decreased $9.2 million, or 11.6%, to $70.2 million at Dec. 31 from $79.4 million at June 30, 2008.

In addition to its normal cash requirements, the company said it will need cash in the next nine months to reinvest the net cash proceeds from the sale of QSP, Inc. into useful assets under the terms of its debt facilities.

Reader's Digest announced in January that it would adopt a global recession plan to strengthen its financial performance in the current economy, including a planned reduction of roughly 8% of its current global workforce, according to the 10-Q.

Reader's Digest is a Pleasantville, N.Y., publishing company.

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