Reorganization and Emergence from Chapter 11

9 Months Ended

Sep. 30, 2011

Reorganization and Emergence from Chapter 11

Reorganization and Emergence from Chapter 11

Note 2                    Reorganization 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.

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 fourth quarter of 2011.