SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 4, 1997
ALLIANCE ENTERTAINMENT CORP.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-13054 13-3645913
- -------------------------------------------------------------------------------
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
110 East 59th Street, New York, New York 10022
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 935-6662
<PAGE>
Item 5. Other Events
On November 4, 1997, Alliance Entertainment Corp. (the "Company") filed the
Trustee's Monthly Reporting Package for the Month Ended September 30, 1997 (the
"Trustee's Report"). The Company is required to file this report with the United
States Bankrupty Court and the United States Trustee pursuant to Bankruptcy Rule
2015 and the United States Trustee's "Operating Guidelines and Financial
Reporting Requirements." The Trustee's Report contains monthly unaudited
consolidating financial statements of Alliance Entertainment Corp. and its
debtor-in-possession subsidiaries, prepared in accordance with the American
Institute of Certified Public Accountants Statement of Position 90-7: "
Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."
for the two month period reported therein.
Certain matters discussed in the Trustee's Report report are
forward-looking statements intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"expects" or words of similar import. Similarly, statements that describe the
Company's future plans, objectives, estimates or goals are also forward-looking
statements. Such statements address future events and conditions concerning
capital expenditures, earnings, sales, liquidity and capital resources, and
accounting matters. Actual results in each case could differ materially from
those currently anticipated in such statements, by reason of factors such as
future economic conditions, including changes in customer demand, legislative,
regulatory and competitive developments in markets in which the Company
operates; and other circumstances affecting anticipated revenues and costs.
Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit 99.1 Trustee's Monthly Reporting Package for the Month Ended
September 30, 1997
<PAGE>
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.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Christopher J. Joyce
----------------------------
Name: Christopher J. Joyce
Title: Executive Vice President,
General Counsel and
Assistant Secretary
Date: November 10, 1997
<PAGE>
EXHIBIT INDEX
Exhibit 99.1 Trustee's Monthly Reporting Package for the Month
Ended September 30, 1997 .
TRUSTEE'S MONTHLY REPORTING PACKAGE
FOR THE MONTH ENDED SEPTEMBER 30, 1997
ALLIANCE ENTERTAINMENT CORP. et al.
(Name of Debtor)
97 B 44673 through 97 B 44687 (BRL) (Jointly Administered)
(Case Numbers)
Willkie Farr & Gallagher
(Debtors' Attorneys)
/s/Timothy Dahltorp
------------------------------------------------
Signed by:
Timothy Dahltorp, Executive Vice President, Chief Financial Officer
(Preparer)
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
SEPTEMBER 30, 1997
(Amounts in Thousands)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,846
Accounts receivable, net 90,881
Inventory 103,553
Prepaid expenses and advances 11,491
Due From Affiliates 29,725
Refundable income taxes 555
Deferred income taxes 1,329
-------------
Total current assets 240,380
INVESTMENTS (1,900)
PROPERTY AND EQUIPMENT 31,234
COPYRIGHTS 8,929
COST IN EXCESS OF NET ASSETS
OF BUSINESSES ACQUIRED 52,846
COVENANTS NOT TO COMPETE 6,700
DEFERRED INCOME TAXES 2,858
OTHER ASSETS 10,660
-------------
$ 351,707
=============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Excess of outstanding checks over
bank balance $ 119
Notes payable 33,000
Accounts payable and accrued expenses 6,927
-------------
Total current liabilities 40,046
DEFERRED INCOME TAXES 1,617
LIABILITIES SUBJECT TO SETTLEMENT
UNDER THE REORGANIZATION CASE 447,279
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 4
Preferred Stock 5
Additional paid-in captial 146,965
Employee notes for stock purchase (52)
Retained earnings (deficit) (284,157)
-------------
(137,235)
-------------
$ 351,707
=============
*The following subsidiaries do not have any operating activity: Alliance
Ventures Inc., AEC Americas, Inc., FL Acquisition Corp. and AEC Acquisition
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
MONTH ENDED SEPTEMBER 30, 1997
(Amounts in Thousands)
<S> <C>
Net Sales $ 23,169
Cost of sales 22,859
-------------
Gross profit 310
Selling, general and administrative expenses 6,730
Asset impairment charge 42,095
Amortization of intangible assets 604
-------------
49,429
-------------
(49,119)
-------------
Reorganization items 15
Other income (expense)
Equity in net income (loss) of unconsolidated
entities (766)
Amortization of deferred financing costs (194)
Other income (expense) - net (8)
Interest expense (1,355)
-------------
(2,323)
-------------
Income(loss) before income taxes (51,457)
Provision for income taxes
-------------
Net income (loss) $ (51,457)
=============
*The following subsidiaries do not have any operating activity: Alliance
Ventures Inc., AEC Americas, Inc., FL Acquisition Corp. and AEC Acquisition
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
MONTH ENDED SEPTEMBER 30, 1997
(Amounts in Thousands)
<S> <C>
Net Income (Loss) $ (51,457)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,162
Equity in net income (loss) of unconsolidated
entities 766
Asset impairment charge 42,095
Reorganization items 15
Changes in working capital and other, net (8,386)
Net cash provided by (used in) operating -------------
activities before reorganization items (15,805)
-------------
Reorganization items:
Chapter 11 professional fees paid (15)
-------------
Net cash used by reorganization items (15)
-------------
Net cash provided by (used in)
operating activities (15,820)
-------------
Cash Flows From Investing Activities
Purchase of property and equipment (19)
(Increase) decrease in investments 9
(Increase) decrease in copyrights (20)
(Increase) decrease in other assets 28
Net cash provided by (used in) -------------
Investing Activities (2)
-------------
Cash Flows From Financing Activities
Increase (decrease) in excess of out-
standing checks over bank balance (188)
Net financing proceeds to affiliates
Proceeds from Borrowings 13,000
Payments on Borrowings
Net Cash provided by (used in) -------------
Financing Activities 12,812
-------------
Net increase (decrease) in cash: (3,010)
Cash
Beginning 5,856
-------------
Ending $ 2,846
=============
* The following subsidiaries do not have any operating activity: Alliance
Ventures Inc., AEC Americas, Inc., FL Acquisition Corp. and AEC Acquisition
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET (Unaudited)
SEPTEMBER 30, 1997
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance
Alliance Eliminations Entertainment
Entertainment AE Land Matrix and Corp. and
Sub-total Corp. Corp Software Execusoft Reclassification Subsidiaries*
---------- ----------- ----------- ---------- ---------- ----------------- --------------
ASSETS
CURRENT ASSETS
Cash and Cash
equivalents $ 1,693 $ 693 $ 16 $ 379 $ 65 $ $ 2,846
Accounts receivable,
net 95,386 (4,589) 22 62 90,881
Inventory 103,553 103,553
Prepaid expenses 10,801 699 (9) 11,491
Due from affiliates 4,673 53,012 775 (7) 167 (28,895) 29,725
Refundable income taxes 38 517 555
Deferred income taxes 838 491 1,329
---------- ----------- ----------- ---------- ---------- ----------------- --------------
Total current assets 216,982 50,823 782 394 294 (28,895) 240,380
INVESTMENTS, at cost 720 32,468 (35,088) (1,900)
PROPERTY AND EQUIPMENT 9,087 1,800 20,136 211 31,234
COPYRIGHTS 3,582 5,347 8,929
COST IN EXCESS OF
NET ASSETS OF
BUSINESS ACQUIRED 52,846 52,846
COVENANTS NOT TO
COMPETE 233 6,467 6,700
DEFERRED INCOME TAXES 683 2,175 2,858
OTHER ASSETS 171 10,341 148 10,660
---------- ----------- ----------- ---------- ---------- ----------------- --------------
$ 231,458 $ 162,267 $ 21,066 $ 605 $ 294 $ (63,983) $ 351,707
========== =========== =========== ========== ========== ================= ==============
LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT)
CURRENT LIABILITIES
Excess of outstanding
checks over bank
balance $ 119 $ $ $ $ $ $ 119
Notes payable 26,883 5,708 409 33,000
Accounts payable
and accrued expenses 3,655 3,108 140 24 6,927
---------- ----------- ----------- ---------- ---------- ----------------- --------------
Total current
liabilities 30,657 8,816 140 433 40,046
DEFERRED INCOME TAXES 1,617 1,617
LIABILITIES SUBJECT
TO SETTLEMENT UNDER
THE REORGANIZATION 190,233 261,222 20,999 3,182 538 (28,895) 447,279
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock 3,123 4 1 13 (3,137) 4
Preferred Stock 5 5
Additional paid-in
capital 26,300 146,965 (26,300) 146,965
Employee notes for
stock purchase (52) (52)
Retained earnings
(deficit) (18,855) (256,310) (73) (3,011) (257) (5,651) (284,157)
Foreign currency
translation
adjustment ---------- ----------- ----------- ---------- ---------- ----------------- --------------
10,568 (109,388) (73) (3,010) (244) (35,088) (137,235)
---------- ----------- ----------- ---------- ---------- ----------------- --------------
$ 231,458 $ 162,267 $ 21,066 $ 605 $ 294 $ (63,983) $ 351,707
========== =========== =========== ========== ========== ================= ==============
*The following subsidiaries do not have any operating activity: Alliance
Ventures, Inc. AEC Americas, Inc., FL Acquisition Corp. and AEC Acquisition
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET (Unaudited)
SEPTEMBER 30, 1997
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Independent Passport Passport Castle AEC
National Music Music Concord Communications One Way One Stop
Distributors Distribution Worldwide Records (U.S.) Records Group Sub-total
------------ ----------- ----------- ---------- ------------- -------- ----------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ $ 53 $ $ $ 26 $ 114 $ 1,500 $ 1,693
Accounts receivable, net 16,971 3,335 256 (930) 5,825 69,929 95,386
Inventory 8,297 1,938 1,319 11,303 80,696 103,553
Prepaid expenses and 69 26 2,058 960 629 7,059 10,801
advances
Due from Affiliates 4,334 1,207 741 (473) (330) (806) 4,673
Refundable income taxes 38 38
Deferred income taxes 838 838
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
Total current assets 29,671 4,621 4,993 902 17,541 159,254 216,982
INVESTMENTS, at cost 292 428 720
PROPERTY AND EQUIPMENT 920 243 193 774 6,957 9,087
COPYRIGHTS 3,582 3,582
COST IN EXCESS OF NET ASSETS
OF BUSINESS ACQUIRED
COVENANTS NOT TO COMPETE 233 233
DEFERRED INCOME TAXES 433 250 683
OTHER ASSETS 16 12 19 43 81 171
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
$ 30,607 $ 4,633 $ $ 9,562 $ 1,095 $ 18,358 $ 167,203 $ 231,458
============= ============ ============ ============ ============== ========== ============ ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Excess of outstanding
checks over bank balance $ 52 $ $ $ 67 $ $ $ $ 119
Notes payable 1,553 173 985 137 1,073 22,962 26,883
Accounts payable and
accrued expenses 1,192 282 270 48 941 922 3,655
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
Total current liabilities 2,797 455 1,322 185 2,014 23,884 30,657
DEFERRED INCOME TAXES
LIABILITIES SUBJECT
TO SETTLEMENT UNDER
REORGANIZATION CASE 74,950 6,273 7,541 7,904 11,609 81,956 190,233
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock 1,000 5 22 2,095 1 3,123
Preferred Stock
Additional paid-in capital 16,117 7 27 10,149 26,300
Employee notes for stock
purchase
Retained earnings (deficit) (64,257) (2,107) 650 (6,994) 2,640 51,213 (18,855)
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
(47,140) (2,095) 699 (6,994) 4,735 61,363 10,568
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
$ 30,607 $ 4,633 $ $ 9,562 $ 1,095 $ 18,358 $ 167,203 $ 231,458
============= ============ ============ ============ ============== ========== ============ ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
MONTHS ENDED SEPTEMBER 30, 1997
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance
Alliance Eliminations Entertainment
Entertainment AE Land Matrix and Corp. and
Sub-total Corp. Corp Software Execusoft Reclassifications Subsidiaries*
---------- ------------- ---------- ---------- ---------- ----------------- --------------
Net sales $ 23,139 $ $ $ 112 $ 1 $ (83) $ 23,169
Cost of sales 22,938 4 (83) 22,859
---------- ------------- ---------- ---------- ---------- ----------------- --------------
Gross Profit 201 108 1 310
Selling, general
and administrative
expenses 5,525 1,015 (22) 212 6,730
Asset impairment
charge 24,678 17,417 42,095
Amortization of
intangible assets 49 555 604
---------- ------------- ---------- ---------- ---------- ----------------- --------------
30,252 18,987 (22) 212 49,429
---------- ------------- ---------- ---------- ---------- ----------------- --------------
(30,051) (18,987) 22 (104) 1 (49,119)
---------- ------------- ---------- ---------- ---------- ----------------- --------------
Reorganization items 15 15
Other income
(expense)
Equity in net income
(loss) of unconsolidated
entities (766) (766)
Amortization of
deferred financing
costs (192) (2) (194)
Other income (expense)
- net (9) 1 (8)
Interest expense (661) (655) (39) (1,355)
---------- ------------- ---------- ---------- ---------- ----------------- -------------
(670) (1,613) (40) (2,323)
---------- ------------- ---------- ---------- ---------- ----------------- -------------
Income before
income taxes (30,721) (20,615) (18) (104) 1 (51,457)
Provision for
income taxes ---------- ------------- ---------- ---------- ---------- ----------------- -------------
Net income (loss) $(30,721) $ (20,615) $ (18) $ (104) $ 1 $ $ (51,457)
========== ============= ========== ========== ========== ================= =============
*The following subsidiaries do not have any operating activity: Alliance
Ventures, Inc., AEC Americas, Inc., FL Acquisition Corp. and AEC Acquisition
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
MONTH ENDED SEPTEMBER 30, 1997
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Independent Passport Passport Castle AEC
National Music Music Concord Communications One Way One Stop
Distributors Distribution Worldwide Records (U.S.) Records Group Sub-total
------------ ----------- ----------- ---------- ------------- -------- ---------- ------------
Net sales $ 325 $ $ $ 345 $ (139) $ 1,019 $ 21,589 $ 23,139
Cost of sales 447 144 1,539 718 20,090 22,938
------------- ----------- ----------- ----------- ------------- -------- ---------- ------------
Gross Profit (122) 201 (1,678) 301 1,499 201
Selling, general and
administrative expenses 1,538 278 (26) 357 3,378 5,525
Asset impairment charge 24,713 (35) 24,678
Amortization of
intangible assets 19 14 16 49
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
26,270 292 (61) 357 3,394 30,252
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
(26,392) (91) (1,617) (56) (1,895) (30,051)
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
Reorganization items
Other income (expense)
Equity in net income
(loss) of unconsolidated
entities
Amortization of deferred
financing costs
Other income (expense)
- net (9) (9)
Interest expense (374) (47) (44) (50) (146) (661)
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
(374) (47) (44) (50) (155) (670)
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
Income (loss) before
income taxes (26,766) (138) (1,661) (106) (2,050) (30,721)
Provision for
income taxes
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
Net income (loss) $ (26,766) $ $ $ (138) $ (1,661) $ (106) $ (2,050) $ (30,721)
============ =========== =========== =========== ============= ======== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
MONTH ENDED SEPTEMBER 30, 1997
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance
Alliance Eliminations Entertainment
Entertainment AE Land Matrix and Corp. and
Sub-total Corp. Corp Software Execusoft Reclassifications Subsidiaries*
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Net Income (loss) $ (30,721) $ (20,615) $ (18) $ (104) $ 1 $ $ (51,457)
Adjustments to reconcile
net income(loss) to net
cash provided by
operating activities:
Depreciation and
amortization 223 777 153 9 1,162
Equity in net income (loss)
of unconsolidated entities 766 766
Asset impairment charge 24,678 17,417 42,095
Reorganization items 15 15
Changes in working
capital and other, net (8,090) (367) 64 8 (1) (8,386)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Net cash provided by
(used in) operating
activities before
reorganization items (13,910) (2,007) 199 (87) (15,805)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Chapter 11 professional
fees paid (15) (15)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Net cash used by
reorganization items (15) (15)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Net cash provided by
(used in) operating
activities (13,910) (2,022) 199 (87) (15,820)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Cash Flows From Investing Activities
Purchase of property
and equipment (8) (11) (19)
(Increase)Decrease in
Investments 9 9
Investments
(Increase)Decrease in
Copyrights (20) (20)
Increase in other assets (1) 29 28
Net cash provided by
(used in) ---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Investing Activities (20) 29 (11) (2)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Cash Flows From Financing Activities
Increase (decrease) in
excess of outstanding
checks over bank balance (188) (188)
Net financing proceeds
to affiliates 11,029 (10,968) (198) 137
Proceeds from borrowings 13,000 13,000
Payments on borrowings
Net Cash provided by
(used in) ---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Financing Activities 10,841 2,032 (198) 137 12,812
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Net increase (decrease)
in cash: (3,089) 39 1 39 (3,010)
Cash
Beginning 4,782 654 15 340 65 5,856
========== ============ ========== =========== ========== ================== ===============
Ending $ 1,693 $ 693 $ 16 $ 379 $ 65 $ $ 2,846
========== ============ ========== =========== ========== ================== ===============
*The following subsidiaries do not have any operating activity: Alliance
Ventures Inc., AEC Americas, Inc., FL Acquisition Corp. and AEC Acquisition
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
MONTH ENDED SEPTEMBER 30, 1997
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Independent Passport Passport Castle AEC
National Music Music Concord Communications One Way One Stop
Distributors Distribution Worldwide Records (U.S.) Records Group Sub-total
---------------- -------------- --------- --------- --------------- -------- --------- -----------
Net Income (loss) $ (26,766) $ $ $ (138) $ (1,661) $(106) $(2,050) $(30,721)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 46 19 3 18 137 223
Equity in net income (loss)
of unconsolidated entities
Asset impairment charge 24,713 (35) 24,678
Reorganization items
Changes in working capital
and other, net 3,072 (291) 1,451 (639) (11,683) (8,090)
Net cash provided by (used
in) operating activities ---------------- -------------- --------- --------- --------------- -------- --------- ----------
before reorganization items 1,065 (410) (242) (727) (13,596) (13,910)
---------------- -------------- --------- --------- --------------- -------- --------- ----------
Reorganization items:
Chapter 11 professional
fees paid
---------------- -------------- --------- --------- --------------- -------- --------- ----------
Net cash used by
reorganization items
---------------- -------------- --------- --------- --------------- -------- --------- ----------
Net cash provided by (used in)
operating activities 1,065 (410) (242) (727) (13,596) (13,910)
---------------- -------------- --------- --------- --------------- -------- -------- ----------
Cash Flows From Investing
Activities
Purchase of property and
equipment (3) (5) (8)
(Increase) decrease
in investments 9 9
(Increase) decrease
in copyrights (20) (20)
(Increase) decrease
in other assets (1) (1)
Net cash provided by
(used in)
---------------- -------------- --------- --------- --------------- -------- -------- ----------
Investing Activities (20) (3) 3 (20)
---------------- -------------- --------- --------- --------------- -------- -------- ----------
Cash Flows From Financing
Activities
Increase (decrease) in excess
of outstanding checks
over bank balance (144) 67 (111) (188)
Net financing proceeds to
affiliates (921) 204 245 906 10,595 11,029
Proceeds from Borrowings
Payments on Borrowings
Net Cash provided by
(used in) ---------------- -------------- --------- --------- --------------- -------- -------- ----------
Financing Activities (1,065) 271 245 795 10,595 10,841
---------------- -------------- --------- --------- --------------- -------- -------- ----------
Effect of foreign currency
translation
Net increase (decrease) in
cash: (159) 68 (2,998) (3,089)
Cash
Beginning 53 159 26 46 4,498 4,782
================ ============== ========= ========= =============== ======== ======== ==========
Ending $ $ 53 $ $ $ 26 $ 114 $ 1,500 $ 1,693
================ ============== ========= ========= =============== ======== ======== =========
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS
Unaudited Interim Financial Information
The unaudited consolidating financial statements of Alliance Entertainment Corp.
and subsidiaries (the "Company"), have been prepared in accordance with the
American Institute of Certified Public Accountants Statement of Position 90-7:
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7") and generally accepted accounting principles applicable to a going
concern, which principles, except as otherwise disclosed, assume that assets
will be realized and liabilities will be discharged in the normal course of
business. The Company filed petitions for relief under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11") on July 14, 1997 (the "Filing"). The
Company is presently operating its business as a debtor-in-possession subject to
the jurisdiction of the United States Bankruptcy Court for the Southern District
of New York (the "Bankruptcy Court").
Except as set forth, the unaudited consolidating balance sheet as of
September 30, 1997 and the unaudited consolidating statements of operations and
cash flows for the month ended September 30, 1997 (interim financial
information), have generally been prepared on the same basis as the audited
financial statements. Excluded from the Filing were the following non-debtor
subsidiaries of the Company's Proprietary Products Group, including: Castle
Communications plc (and its related affiliates); The St. Clair Entertainment
Group, Inc.; and Red Ant Entertainment LLC ("Red Ant") (and its related
affiliates). Accordingly, the accompanying financial statements have been
prepared excluding their financial position, results of operations and cash
flows. The results of operations of those businesses and the Company's
underlying equity therein have been presented under the equity method of
accounting. In the opinion of the Company, the interim financial information
includes all adjustments, consisting of only normal recurring adjustments,
necessary for a fair statement of the results of the interim period.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial information. These
statements should be read in conjunction with the Company's financial statements
(Form 10-K) for the year ended December 31, 1997. The results of operations for
the month ended September 30, 1997, may not be indicative of the operating
results for the full year or any future interim period.
The Company experienced a significant operating loss in 1996 and continued to
post a year-to-date operating loss in 1997. The Company's ability to continue as
a going concern is dependent upon the confirmation of a plan of reorganization
by the Bankruptcy Court, the ability to maintain compliance with debt covenants
under the Revolving Credit and Guaranty Agreement ("DIP Financing Agreement"),
achievement of profitable operations, and the resolution of the uncertainties of
the reorganization case discussed below.
<PAGE>
Restructuring and Other Charges
During the month ended September 30, 1997, approximately $0.3 million was
paid and charged against a liability established by the Company at December 31,
1996 for restructuring and other non-recurring charges relating to the
consolidation plan announced in November, 1996. As of September 30, 1997,
approximately $10.4 million remains to be paid in future periods.
Reorganization under Chapter 11; Pre-Petition Credit Agreement
On June 30, 1997, Alliance Entertainment Corp. ("Alliance" or the "Company")
failed to make the full amortization payment of $1.5 million on its senior
secured credit facility (the "Pre-petition Credit Agreement") and additionally
failed to satisfy a financial covenant requiring the Company raise $35 million
of equity prior to July 1, 1997 and as a result was in default under the
provisions of its Pre-petition Credit Agreement. Under the terms of its
Pre-petition Credit Agreement and as a result of the existing defaults, the
Company's banks had the right to accelerate the maturity of approximately $187
million of outstanding indebtedness.
Additionally, as a result of the defaults under the Pre-petition Credit
Agreement, the Company was blocked from making a July 15, 1997 interest payment
due and payable on the Company's $125 million of 11.25% Senior Subordinated
Notes due 2005.
On July 14, 1997, as a result of the defaults under the Pre-petition Credit
Agreement, the pending payment default on the Company's Senior Subordinated
Notes and an overall inability to operate the Company's business under the
existing liquidity restraints, the Company and fourteen of its wholly-owned
subsidiaries filed voluntarily under Chapter 11 of the Bankruptcy Code in order
to facilitate the reorganization of the Company's core businesses and the
restructuring of the Company's long-term debt, revolving credit and trade and
other obligations. The Company continues to operate with its existing directors
and officers as a debtor-in-possession subject to the Bankruptcy Court's
supervision and orders. Excluded from the filing were certain businesses in the
Company's Proprietary Products Group, including: Castle Communications plc (and
its related affiliates); The St. Clair Entertainment Group, Inc.; and Red Ant
Entertainment LLC ("Red Ant") (and its related affiliates). The filing was made
in the U.S.
District Court for the Southern District of New York in Manhattan.
The filing of the petition under Chapter 11 of the Bankruptcy Code resulted in
the occurrence of an Event of Default under the Company's: (i) Indenture
relating to its 11.25% Senior Subordinated Notes due 2005; (ii) Credit
Agreement; (iii) 6% Exchangeable Notes; and (iv) Mortgage Bond for its
distribution facility in Coral Springs, Florida.
Pursuant to the provisions of the Bankruptcy Code, all of the Company's
liabilities as of July 14, 1997, were automatically stayed upon the Company's
filing of its petition for reorganization. In addition, absent approval from the
Bankruptcy Court, the Company is prohibited from paying any pre-petition
obligations. In hearings held on July 14 and 16, 1997, the Bankruptcy Court
approved the Company's request for payment of certain pre-petition wages and
benefits, use of the Company's cash management system and retention of legal and
financial professionals.
<PAGE>
In the Company's Chapter 11 case, substantially all liabilities as of the date
of the Filing are subject to settlement under a plan or reorganization to be
voted upon by the Company's creditors and stockholders and confirmed by the
Bankruptcy Court. Schedules have not yet been filed by the Company with the
Bankruptcy Court setting forth the assets and liabilities of the Company as of
the date of the Filing as shown by the Company's accounting records. Upon filing
of the schedules, differences between amounts shown by the Company and claims
filed by creditors will be investigated and resolved. The ultimate amount and
settlement terms for pre-petition liabilities are subject to a plan of
reorganization, and accordingly, are not presently determinable.
Under the Bankruptcy Code, the Company may elect to assume or reject real
estates leases, employment contracts, personal property leases, service
contracts and other executory pre-petition leases and contracts, subject to
Bankruptcy Court approval. The Company cannot presently determine or reasonably
estimate the ultimate liability which may result from the filing of claims for
any rejected contracts or from leases which may be rejected at a future date.
The principal categories of claims classified as "Liabilities subject to
settlement under the reorganization case" are identified below. All amounts
presented below may be subject to future adjustments depending on Bankruptcy
Court actions, further developments with respect to disputed claims,
determination as to the security of certain claims, the value of any collateral
securing such claims, or other events.
<TABLE>
<CAPTION>
Liabilities Subject to Settlement (000's)
-------
Under the Reorganization Case September 30, 1997
- ----------------------------- ---------------------
<S> <C>
Accounts payable and accrued expenses $158,557
Pre-Petition Credit Agreement 144,100
11.25% Senior Subordinated Notes due 2005 125,000
6% Exchangeable Notes 10,805
Mortgage Payable 6,280
Other Promissory Notes 1,395
Obligations under capital leases 1,067
Accounts payable Non-Debtor Subsidiaries 75
--------
$447,279
========
</TABLE>
Alliance intends to present a plan of reorganization to the Bankruptcy Court to
reorganize the Company's core business and restructure the Company's long-term
debt, revolving credit and trade obligations. Under provisions of the Bankruptcy
Code, the Company has the exclusive right to file a plan at any time prior to
November 12, 1997. The Company intends to request an extension of the exclusive
period.
In the event that a plan of reorganization is approved by the Bankruptcy Court,
continuation of the business after reorganization will be dependent upon the
success of future operations and the Company's ability to meet its obligations
as they become due. In the event that such a plan of reorganization is not
approved by the Bankruptcy Court and a Restructuring Plan is not consummated,
the ability of the Company to continue as a going concern depends on the success
of future operations and the ability of the Company to generate sufficient cash
from operations and financing sources to meet its obligations as they become due
and to finance its operations. The accompanying financial statements have been
prepared on a going concern basis, which, except as disclosed, contemplates
continuity of operations, realization of assets and discharge of liabilities in
the ordinary course of business. As a result of the Chapter 11 filing, the
Company may have to sell or otherwise dispose of assets and discharge or settle
liabilities for amounts other than those reflected in the financial statements.
Further, a plan of reorganization could materially change the amounts currently
recorded in the financial statements. The financial statements do not give
effect to all adjustments to the carrying value of assets, or amounts and
classification of liabilities that might be necessary as a consequence of the
proceeding. The appropriateness of using the going concern basis is dependent
upon, among other things, confirmation of a plan of reorganization, success of
future operations and the ability to generate sufficient cash from operations
and financing sources to meet obligations.
<PAGE>
In addition, valuation methods used in Chapter 11 reorganization cases vary
depending on the purpose for which they are prepared and used and are rarely
based on generally accepted accounting principles, the basis on which the
accompanying financial statements are prepared. Accordingly, the values set
forth in the accompanying financial statements are not likely to be indicative
of the values presented to or used by the Bankruptcy Court. As a result,
valuations of the Company based on the accompanying financial statements may be
significantly higher than valuations used by the Company in determining the
amounts to be received, if any, by each class of creditors under a plan of
reorganization.
DIP Financing
In connection with the Company's Chapter 11 filing, on July 16, 1997, the
Company entered into a DIP Financing Agreement with Chase Manhattan Bank
providing for a maximum of $50 million of debtor-in-possession ("DIP") financing
subject to approval by the Bankruptcy Court. The DIP Financing Agreement is
intended to address the Company's immediate working capital needs and to support
the Company's operations during its Chapter 11 proceedings. The Company's use of
the full DIP Financing Agreement was approved by the Court.
The DIP Financing Agreement provides for borrowings under a revolving credit and
a letter of credit facility. Loans under the revolving credit facility bear
interest at either the Alternate Base Rate (as defined in the DIP Financing
Agreement) plus 1.5% or at the Adjusted LIBOR Rate (as defined in the DIP
Financing Agreement) plus 2.75%. Loans under the letter of credit facility bear
interest at the Alternate Base Rate plus 1.5%. The terms of the DIP Financing
Agreement contain certain restrictive covenants including: limitations on the
incurrence of additional guarantees, liens and indebtedness; limitations on the
sale of assets and the making of capital expenditures. The DIP Financing
Agreement also requires that the Company meet certain minimum earnings before
taxes and other expenses as defined through the end of 1998.
Under the DIP Financing Agreement, Chase Manhattan Bank has been given a
perfected first priority lien on all property and assets of the Company and its
fourteen wholly-owned debtor-in-possession subsidiaries. The banks who are
parties to the Pre-Petition Credit Agreement, as well as certain other secured
creditors of the Company, have been granted replacement liens on the Company's
assets (junior to the lien granted under the DIP Financing Agreement) to
adequately protect such creditors' secured claims against the Company prior to
its Chapter 11 filing.
The DIP Financing Agreement expires on January 31, 1999, or earlier upon the
occurrence of certain events, including confirmation of a plan of reorganization
by the Bankruptcy Court, a sale of substantially all of the assets of the
Company, or failure by the Company to receive a final order confirming a plan of
reorganization.
<PAGE>
Sale of Red Ant Subsidiary
On July 23, 1997, the Company and Chase Manhattan amended the DIP Financing
Agreement to provide up to $1.25 million of funding for Red Ant and its
affiliated entities on a non-bankruptcy basis to facilitate the solicitation of
bids from third parties to purchase Alliance's interests in Red Ant. On August
15, 1997, the court approved the sale of 90% of the Company's interest in Red
Ant and its affiliates to Cypress Ventures, Inc. an affiliate of Wasserstein
Perella & Co. ("CVI"), for aggregate cash consideration of $625,000, a twelve
month promissory note in the amount of $425,000 bearing interest at 8% and an
additional commitment from CVI to provide new working capital for Red Ant (in
the form of mezzanine indebtedness senior in priority to the equity interest
holders of Red Ant) up to an amount of approximately $11 million with $3 million
to be provided upon consummation of the sale to CVI.
The sale was completed on August 19, 1997. The Company has taken a non-cash
charge of $17.9 million related to the write-off of the goodwill and its
underlying investment on its Red Ant subsidiary, including $1,050,000 of funding
provided under the DIP Financing Agreement.
Indebtedness
As a result of the Filing, substantially all debt (exclusive of the DIP
Financing Agreement) outstanding at July 14, 1997, was classified as liabilities
subject to settlement. No principal or interest payments are made on any
pre-petition debt (excluding interest payments on the Pre-petition Credit
Agreement with Chase Manhattan Bank) without Bankruptcy Court approval or until
a reorganization plan defining the repayment terms has been approved.
Generally, interest on pre-petition debt ceases accruing upon the filing of a
petition under the Bankruptcy Code. However, if debt is collateralized by an
interest in property whose value (minus the cost of preserving such property)
exceeds the amount of the debt, post-petition interest may be payable. Other
than those noted above, no other determinations have yet been made regarding the
value of the property interests which collateralize various debts. Although
interest may be paid pursuant to an order of the Bankruptcy Court, other than
interest on the Pre-petition Credit Agreement, it is uncertain whether any other
post-petition interest will be payable or paid. The Company believes at this
time that it is unlikely that such interest will be paid. Contractual interest
expense not recorded on certain pre-petition debt (11.25% Senior Subordinated
Notes due 2005, 6% Exchangeable Notes and other promissory notes) totaled
approximately $1.2 million for the month ended September 30, 1997.
Income Taxes
Based upon current operations of the Company and other factors, an income tax
benefit was not recorded for the Company and its fourteen wholly owned
subsidiaries which filed under Chapter 11 for the two months ended August 31,
1997. The Company anticipates that pre-tax losses, if any, which may be realized
during the fiscal year ending December 31, 1997, will not result in the
recording of any additional tax benefit by the Company. Further, any net
operating loss carry forwards prior to, and subsequent to the filing date, may
be severely reduced by the bankruptcy case.
<PAGE>
Reorganization Items
The Company recorded the following expense and income items during the
month ended September 30, 1997, directly associated with the Chapter 11
reorganization proceedings and the resulting restructuring of its operations:
(000's)
Month Ended
September 30, 1997
-------------------
Professional fees $15
Professional fees represent estimates of expenses incurred, primarily for legal,
consulting and accounting services provided to the Company and the creditors
committee (which are required to be paid by the Company while in Chapter 11).
Interest income represents interest earned on cash invested during the Chapter
11 proceeding.
Closure of Independent National Distribution, Inc.
On September 22,1997, the Company announced plans to close operations of
Independent National Distributors, Inc. ("INDI"), the Company's independent
distribution subsidiary by the end of first quarter 1998.
During the month of September, the Company recorded a $42.1 million
restructuring and asset impairment charge in connection with the closure and
liquidation of these operations. Included in the $42.1 million was a non-cash
charge of $21.9 million related to the write-off of goodwill.
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
Trade Payables and Insurance
September 30,1997
To the best of the Company's knowledge, all post-petition trade payables
are current and all insurance policies, including all applicable workers'
compensation and disability insurance policies, are fully paid as of September
30, 1997.
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Court Reporting Schedules - Tax Payments and Collections
Month ended September 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Gross Wages Paid $3,108,712.41 Schedule I
Payroll Taxes Withheld 682,571.71 Schedule II
Payroll Taxes Incurred 185,767.55 Schedule III
Gross Taxable Sales 87,007.77 Schedule IV
Sales Tax Collected 5,104.91 Schedule IV
Payment of Payroll Taxes - Schedule V
Payment of Tax Payments 57,314,01 Schedule VI
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule I
Court Reporting Schedules for Payroll Tax Payments and Collections
Two week period ended September 5 and September 19
GROSS WAGES PAID
<TABLE>
<CAPTION>
<S> <C>
Two Week Period Ended
Date Gross Wages
- --------------------- --------------
September 5, 1997 $1,562,136.49
September 19, 1997 1,546,575.92
--------------
Total $3,108,712.41
==============
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule II
Court Reporting Schedules for Payroll Tax Payments and Collections
Two week periods ended September 5 and September 19
PAYROLL TAXES WITHHELD
<TABLE>
<CAPTION>
<S> <C> <C>
Two Week Period Ended Payroll Tax
Date Tax Type Withheld
- --------------------- ------------------ -----------
September 5, 1997 Federal Income Tax $214,411.14
FICA &MEDI w/h 92,393.67
State w/h 25,387.65
Local w/h 3,498.26
September 19, 1997 Federal Income Tax 224,856.49
FICA &MEDI w/h 86,535.92
State w/h 29,203.00
Local w/h 4,712.97
-------------
TOTAL $ 682,571.71
=============
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule III
Court Reporting Schedules for Payroll Tax Payments and Collections
Two week periods ended September 5 and September 19
PAYROLL TAXES INCURRED
<TABLE>
<CAPTION>
<S> <C> <C>
Two Week Period Ended Employer Payroll Amount
Date Tax Contributions Incurred
- --------------------- --------------------- -----------
September 5,1997 FICA & MEDI Expenses $92,393.35
FUTA 582.83
Disability/SUI 2,876.98
September 19, 1997 FICA & MEDI Expenses 86,825.36
FUTA 520.48
Disability/SUI 2,568.55
-----------
TOTAL $185,767.55
===========
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule IV
Schedules of Sales and Meals Tax Collected
Month Ended September 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Sales Tax Gross Taxable
Taxing Jurisdiction Collected Sales
- -----------------------------------------
Florida Department of Revenue $ 632.41 $24,768.83
State Board of Equilization - California 1,936.15 28,312.94
New York Department of Revenue 2.08 26.00
New Jersey Department of Revenue .90 15.00
State of Michigan - Department of Treasury 661.04 11,017.00
State Board of Equalization - California 914.08 11,238.00
New York Department of Revenue 958.25 11,630.00
--------- ----------
$5,104.91 $87,007.77
========= ==========
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule V
Court Reporting Schedules for Payroll Tax Payments and Collections
Two week period ended September 5 and September 19
PAYMENT OF TAXES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Tax Period Tax Type Taxing Jurisdiction Date Paid Amount Paid
- ----------- -------- ------------------- --------- -----------
</TABLE>
The Company's payroll is processed by a third party payroll service.
Accordingly, at each payroll period the Company transfers funds to the payroll
service who in turn makes payments directly to the appropriate taxing
jurisdiction on the Company's behalf.
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule VI
Schedules of Tax Payments
Month Ended September 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Tax Jurisdiction Tax Type Amount Paid Date Paid
- -------------------------------------------- ---------------------------- ---------------- --------------------
Florida Department of Revenue Florida Sales and Use Tax $ 632.41 September 22, 1997
State Board of Equilization - California California Sales and Use Tax 2,102.00 September 22, 1997
City of Albany School District Tax 54,577.60 September 24, 1997
Commission of Finance - CT Estimated Income Tax 12,500.00 September 11, 1997
Franchise Tax Board - CT Income Tax 17,384.00 September 11, 1997
New Jersey Department of Labor Amended Quarterly Report 10.00 September 11, 1997
State of New Jersey Tax Corporation Tax 100.00 September 11, 1997
State of New Jersey Tax Corporation Tax 100.00 September 11, 1997
State of New Jersey Tax Corporation Tax 100.00 September 11, 1997
State of New Jersey Tax Corporation Tax 100.00 September 11, 1997
NYC Department of Finance Income Tax 4,000.00 September 11, 1997
NYS Corporation Tax Income Tax 7,500.00 September 11, 1997
NYS Corporation Tax Income Tax 1,000.00 September 11, 1997
NYC Department of Finance Rent Tax 3,259.00 September 11, 1997
-------------
$103,365.01
=============
</TABLE>
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ------------------------------------------------x
In re :
: Chapter 11
ALLIANCE ENTERTAINMENT CORP., et al, : Case No. 97 B 44673
: through 97 B 44687 (BRL)
Debtors. :
: (Jointly Administered)
- ------------------------------------------------x
Verification Under Penalty of Perjury
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
Timothy Dahltorp, being duly sworn, deposes and says:
1. I am Executive Vice President, Chief Financial Officer of Alliance
Entertainment Corp. The foregoing operating statements of Alliance Entertainment
Corp. and subsidiaries were prepared under my direction.
2. The foregoing operating statements are true and correct to the best of
my knowledge, information and belief.
/s/Timothy Dahltorp
--------------------------------
Timothy Dahltorp
Sworn to before me this
3rd day of October, 1997
/s/
- ---------------------------
Notary Public
