-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ESSKi4F+EAL5tFRt+uRXlh/AltAvbjloetRgiYdKW41tDNYvwXy8epQguz0h6QLc 4dua8XmictoSr6v0MRIixw== 0001021408-02-009981.txt : 20020730 0001021408-02-009981.hdr.sgml : 20020730 20020730172631 ACCESSION NUMBER: 0001021408-02-009981 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020509 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL EUROPEAN DISTRIBUTION CORP CENTRAL INDEX KEY: 0001046880 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-BEER, WINE & DISTILLED ALCOHOLIC BEVERAGES [5180] IRS NUMBER: 541865271 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-24341 FILM NUMBER: 02715123 BUSINESS ADDRESS: STREET 1: PALM TOWER BUILDING STREET 2: 1343 MAIN STREET SUITE 301 CITY: SARASOTA STATE: FL ZIP: 34236 BUSINESS PHONE: 9413301558 MAIL ADDRESS: STREET 1: PALM TOWER BUILDING STREET 2: 1343 MAIN STREET SUITE 301 CITY: SARASOTA STATE: FL ZIP: 34236 8-K/A 1 d8ka.txt FORM 8K AMENDMENT SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 Form 8-K/A (Amendment No. 3) CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 May 9, 2002 (Date of Report) Central European Distribution Corporation (Exact name of registrant as specified in its charter)
Delaware 0-24341 54-1865271 (State or other jurisdiction (Commission file number) (IRS employer identification number) of incorporation)
1343 Main Street, Suite 301, Sarasota Florida 34236 (Address of Principal Executive Offices) Registrants telephone number, including area code: (941) 330 1558 EXPLANATORY NOTE The Company is amending its Form 8-K, initially filed on May 9, 2002, to revise the pro forma financial statements set forth in Items 7(b) of the Forms 8-K/A filed on May 14, 2002 and June 3, 2002 relating to the acquisitions of AGIS S.A. and Damianex S.A. The Company is not amending any of the audited financial statements for AGIS S.A. and Damianex S.A. set forth in Items 7(a) of these Forms 8-K/A. 2 ITEM 2. Acquisition or Disposition of Assets On April 25, 2002, Central European Distribution Corporation ("the Company", "CEDC") completed the acquisition of Damianex S.A., an alcohol wholesaler in Southwestern Poland and Agis S.A., an alcohol wholesaler in central Poland. The terms and conditions of these acquisitions were negotiated on an arms-length basis. CEDC acquired all of the outstanding securities of both companies for approximately $11.75 million in cash and 334,000 shares of CEDC common stock. These acquisitions were funded from a combination of cash from CEDC's recent private placement of common stock, the issuance of shares of common stock of CEDC to the stockholders of Damianex S.A. and Agis S.A., and proceeds of a loan from Fortis Bank Polska. A copy of the press release, dated April 25,2002, issued by CEDC regarding the closing of the above-described transactions is attached as Exhibit 99.1 hereto. ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial statements of businesses acquired: Included herewith are the following audited financial statements of Damianex S.A. and AGIS S.A: (i) Damianex S.A. Balance Sheets at December 31, 2000 and December 31, 2001 Statements of Income for the years ended December 31, 2000 and December 31, 2001 Statements of Changes in Stockholders' Equity for the years ended December 31, 2000 and December 31, 2001 Statements of Cash Flows for the years ended December 31, 2000 and December 31, 2001 Notes to Financial Statements (ii) AGIS S.A. Balance Sheets at December 31, 2000 and December 31, 2001 Statements of Income for the years ended December 31, 2000 and December 31, 2001 Statements of Changes in Stockholders' Equity for the years ended December 31, 2000 and December 31, 2001 Statements of Cash Flows for the years ended December 31, 2000 and December 31, 2001 Notes to Financial Statements (b) Unaudited Pro forma Financial Information 3 Included herewith is the following unaudited pro forma financial information for the Company: Unaudited pro forma condensed combined balance sheet at December 31, 2001 Unaudited pro forma condensed combined income statement for the year ended December 31, 2001 Notes to the unaudited pro forma financial information (c) Exhibits. 2.1. Investment Agreement for Damianex S.A. dated April 22, 2002* 2.2. Shares Purchase Agreement for AGIS S.A. dated April 24, 2002* 23 Consents of Ernst & Young Sp. z o. o.* 99.1 Press Release dated April 25, 2002 concerning the completion of two strategic acquisitions of AGIS S.A. and Damianex S.A.* * Previously filed. 4 Signatures 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 hereunto duly authorized. Central European Distribution Corporation (Registrant) /s/ James Archbold July 30, 2002 James Archbold Vice President and Corporate Secretary 5 INDEX FINANCIAL STATEMENTS OF DAMIANEX S.A. Report of Independent Auditors ........................................ 7 Balance Sheets at December 31, 2000 and December 31, 2001 ............. 8 Statements of Income for the years ended December 31, 2000 and December 31, 2001 ..................................................... 9 Statements of Changes in Stockholders' Equity for the years ended December 31, 2000 and December 31, 2001 ............................... 10 Statements of Cash Flows for the years ended December 31, 2000 and December 31, 2001 ................................................. 11 Notes to Financial Statements ......................................... 12 FINANCIAL STATEMENTS OF AGIS S.A. Report of Independent Auditors ........................................ 19 Balance Sheets at December 31, 2000 and December 31, 2001 ............. 20 Statements of Income for the years ended December 31, 2000 and December 31, 2001 ..................................................... 21 Statements of Changes in Stockholders' Equity for the years ended December 31, 2000 and December 31, 2001 ............................... 22 Statements of Cash Flows for the years ended December 31, 2000 and December 31, 2001 ................................................. 23 Notes to Financial Statements ......................................... 24 UNAUDITED PRO FORMA FINANCIAL INFORMATION Unaudited pro forma condensed combined balance sheet at December 31, 2001 .............................................................. 32 Unaudited pro forma condensed combined income statement for the year ended December 31, 2001 .......................................... 34 Notes to the unaudited pro forma financial information ................ 35 REPORT OF INDEPENDENT AUDITORS The Board of Directors of Damianex S.A. We have audited the accompanying balance sheets of Damianex S.A. as of December 31, 2000 and 2001 and the related statements of income, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Damianex S.A. at December 31, 2000 and 2001, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG AUDIT Sp. z o.o. Warsaw, Poland April 22, 2002 7 DAMIANEX S.A. BALANCE SHEETS (Amounts in columns expressed in thousands)
December 31, ------------------ 2000 2001 ------- ------- ASSETS Current Assets Cash and cash equivalents $ 2,688 $ 2,327 Accounts receivable, (net of allowance for doubtful accounts of $55,000 and $273,000, respectively) 5,795 6,964 Inventories 4,282 4,356 Deferred income taxes 2 19 Prepaid expenses and other current assets 178 54 ------- ------- Total Current Assets 12,945 13,720 Non-current deferred income taxes 164 172 Property, plant, and equipment, net 1,370 1,550 ------- ------- Total Assets $14,479 $15,442 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Trade accounts payable $ 6,431 $ 3,346 Bank loans and overdraft facilities 5,303 8,012 Income and other taxes payable 264 308 Other current liabilities 143 205 ------- ------- Total Current Liabilities 12,141 11,871 Commitments and contingencies Stockholders' Equity Common Stock ($57 par value, 30,500 shares authorized, issued and outstanding at December 31, 2000 and 2001) 1,739 1,739 Retained earnings 617 1,727 Accumulated other comprehensive income (loss) (18) 105 ------- ------- Total Stockholders' Equity 2,338 3,571 ------- ------- Total Liabilities and Stockholders' Equity $14,479 $15,442 ======= =======
8 DAMIANEX S.A. STATEMENT OF INCOME (Amounts in columns expressed in thousands)
Year ended December 31, ----------------------- 2000 2001 ------- ------- Net sales $59,135 $78,977 Cost of goods sold, excluding depreciation 52,756 70,262 ------- ------- 6,379 8,715 Selling, general and administrative expenses, excluding depreciation 4,976 6,008 Bad debt expense 45 218 Depreciation of tangible fixed assets 49 258 ------- ------- Operating income 1,309 2,231 Non-operating income (expense) Interest expense (401) (555) Interest income 62 108 Realized and unrealized foreign currency transaction gains, net 16 140 Other expenses, net (88) (193) ------- ------- Income before income taxes 898 1,731 Income tax expense (296) (520) ------- ------- Net income $ 602 $ 1,211 ======= =======
See accompanying notes. 9 DAMIANEX S.A. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Monetary amounts in columns expressed in thousands)
Accumulated other Common Retained comprehensive Stock Earnings income/(loss) Total --------------- -------- ------------- ------ No. of shares Amount ------ ------ Balance at 31, December 1999 30,500 $1,739 $ 15 $ 184 $1,938 Net income 602 -- 602 Foreign currency translation adjustment -- -- -- (202) (202) (net of tax effect) ------ ------ ------ ----- ------ Comprehensive income -- -- 400 ------ ------ ------ ----- ------ Balance at 31, December 30,500 1,739 617 (18) 2,338 2000 Net income -- -- 1,211 -- 1,211 Foreign currency translation adjustment (net of tax effect) -- -- -- 123 123 ------ ------ ------ ----- ------ Comprehensive income -- -- 1,334 Dividend declared and paid (101) (101) ------ ------ ------ ----- ------ Balance at 31, December 30,500 $1,739 $1,727 $ 105 $3,571 2001 ====== ====== ====== ===== ======
See accompanying notes. 10 DAMIANEX S.A. STATEMENTS OF CASH FLOWS (amounts in columns expressed in thousands)
Year ended December 31, ----------------------- 2000 2001 ------- ------- Operating Activities Net income $ 602 $ 1,211 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 49 258 Bad debt provision 45 218 Deferred income tax benefit (2) (25) Gain on disposal of fixed assets (6) (14) Changes in operating assets and liabilities: Accounts receivable (2,203) (1,387) Inventories (3,617) (74) Prepayments and other current assets (156) 124 Trade accounts payable 4,545 (3,085) Income and other taxes payable 216 44 Other payables 141 199 ------- ------- Net Cash used in Operating Activities (386) (2,531) Investing Activities Purchase of property and equipment (645) (481) Proceeds from sale of equipment 35 43 ------- ------- Net Cash used in Investing Activities (610) (438) Financing Activities Proceeds from short-term borrowings 5,303 8,012 Repayments of short-term borrowings (1,717) (5,303) Dividends paid -- (101) ------- ------- Net Cash Provided by Financing Activities 3,586 2,608 ------- ------- Net Increase (Decrease) in cash and cash equivalents 2,590 (361) Cash and cash equivalents at beginning of period 98 2,688 ------- ------- Cash and cash equivalents at end of period $ 2,688 $ 2,327 ======= ======= Supplement cash flow information: Interest paid $ 397 $ 447 Income taxes paid $ 163 $ 391
See accompanying notes. 11 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) 1. Organization and Description of Business The business "Damianex was originally organized as a partnership ("the Partnership") during 1991. Damianex S.A. (the "Company", "S.A.") was established on December 10, 1998 as a Polish Joint Stock Company. The Company started trading activities on May 21, 1999, when inventories were transferred to the Company from the Partnership in exchange for cash. The partnership ceased to exist during 2000. The Company's main activities are the wholesale of alcoholic (mainly beer) and non-alcoholic beverages. The Company has approximately 600 employees and 11 branch offices, which are located throughout south-eastern Poland. The Company's headquarters are located in Lancut, Poland and all of the Company's operations are conducted within the boundaries of Poland. Pursuant to Polish statutory requirements, Damianex S.A. may pay annual dividends, based on their audited Polish statutory financial statements, to the extent of their retained earnings as defined. At December 31, 2001, substantially all retained earnings were available for payment of dividends. 2. Accounting Policies The significant accounting policies and practices followed by the Company are as follows: Basis of Presentation The Company maintains its books of account and prepares its statutory financial statements in Polish zloties (PLN) in accordance with Polish statutory requirements and the Accounting Act of September 29, 1994. The accompanying financial statements have been adjusted to reflect accounting principles generally accepted in the United States ("US GAAP"). Foreign Currency Translation and Transactions The accompanying financial statements have been prepared in US Dollars. The Company's functional currency is the local currency -Polish Zloty. Assets and liabilities are translated to US Dollars at the exchange rate in effect at each year end. Income statement accounts are translated to US Dollars at the average rate of exchange prevailing during the year. Translation adjustments (net of taxes) arising from the use of differing exchange rates from period to period are included as a separate component of stockholders' equity. Gains and losses from foreign currency transactions are included in net income for the period. The exchange rate used on zloty denominated transactions and balances for translation purposes as of December 31, 2000 and 2001 for one US dollar was 4.149 PLN and 3.98 PLN respectively. As of April 22, 2002, the rate had changed to 4.04 PLN. 12 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS Monetary amounts in columns expressed in thousands Property, Plan and Equipment Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Depreciation periods are as follows: Type Depreciation life in years - ------------------------- -------------------------- Land -- Buildings 25-40 Machinery and Equipment 2-5 Transportation Equipment 2-5 Other 2-7 The Company periodically reviews property, plant and equipment, when indicators of impairment exist and if the value of the asset is impaired, an impairment loss is recognized. The Company recognizes impairment losses on long-lived assets in the event the net book values of such assets exceeds the future undiscounted cash flows attributable to such assets. No such impairment adjustments have been recorded by the Company. Revenue Recognition Revenue is recognized when goods are shipped or delivered to customers in accordance with United States Securities and Exchange Commission Staff Accounting Bulletin 101. Sales are presented net of sales returns and discounts. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market value. Inventories are comprised primarily of beer and non-alcoholic beverages. The Company has not experienced significant losses from spoilage or obsolescence. Cash and Cash Equivalents Short-term investments that have a maturity of three months or less at the date of purchase are classified as cash equivalents. All of the amounts were located in bank accounts in Poland at December 31, 2001 and 2000. Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences may be material to the financial statements. Income Taxes The Company computes and records income taxes in accordance with the liability method. Comprehensive income Comprehensive income, is defined as all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income includes net income adjusted by, among other items, foreign currency translation adjustments. The foreign translation gains and losses on the translation from Polish zloties to US dollars are classified as a separate component of the stockholders' equity as "accumulated other comprehensive income (loss)". During the period ended December 31, 2001, the Company incurred foreign currency translation gains of $123,000 (net of tax effect) and reported this amount as part of the accumulated comprehensive income in stockholders' equity of $105,000. The total of the accumulated other comprehensive income consists of currency translation adjustments. 13 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS Monetary amounts in columns expressed in thousands ($12,000 net loss, net of taxes) and adjustments from discontinuing hyper-inflationary accounting for assets purchased prior to January 1, 1998 ($117,000 gain, net of taxes) Employee benefits The Company is required pursuant to Polish labor laws, to pay a bonus of one months salary to employees upon retirement. The estimated liability for these benefits is accrued on a current basis. The Company also accrues for vacation pay. Recently issued accounting pronouncements In June 2001, the Financial Accounting Standards Board (FASB) released SFAS 141 "Business Combinations". This Statement requires that combinations be accounted for by a single method - the purchase method. This Statement also requires among other things, separate recognition of intangible assets apart from goodwill if they meet the prescribed criteria. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. In June 2001, the FASB released SFAS 142 "Goodwill and other intangible assets". This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses among other things, how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001. The Company does not anticipate that these two statements will have a material effect on their financial statements. In August 2001, the FASB released SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". This standard supersedes SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of". This statement removes goodwill from its scope, (addressed in SFAS 142) and addresses long-lived assets to be held and used, to be disposed of other than by sale and to be disposed of by sale. The provisions of this statement are required to be applied starting with fiscal years beginning after December 15, 2001. The Company does not anticipate that this statement will have a material effect on their financial statements. 3. Property, Plant and equipment Property, plant and equipment, presented net of accumulated depreciation in the balance sheets, consists of: December 31, ----------------- 2000 2001 ------ ------ Land $ 78 $ 87 Buildings 738 799 Machinery and equipment 57 86 Transportation equipment 575 878 Other 148 179 ------ ------ 1,596 2,029 Less accumulated depreciation 226 479 ------ ------ Property, plant and equipment, net $1,370 $1,550 ====== ====== 14 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) 4. Allowance for Doubtful Accounts Changes in the allowance for doubtful accounts were as follows: Year ended December, 31 ----------------------- 2000 2001 ---- ---- Balance, beginning of year $10 $ 55 Provision for doubtful accounts 45 218 ----------------------- Balance, end of year $55 $273 ======================= 5. Short-term bank loan and overdraft facilities During 2000, the Company entered into two overdraft facilities that were denominated in foreign currencies. These were: 4,707,900 Swiss Franc (CHF) (secured by an authorization to the Company's current bank account and the cession of rights to an insurance agreement, with an interest rate of 3 months CHF LIBOR) and a $1,220,000 USD facility which was secured with a bill of exchange, cession of rights to an insurance agreement and take-over rights in regards to inventory and fixed assets. The interest rate applied amounted to 6 months USD LIBOR plus 1%. The Company also opened a 5,000,000 Polish Zloty (PLN) overdraft facility, secured by cession of rights to an insurance agreement, bill of exchange and take-over rights to vehicles. The interest rate applied was WIBOR. December 31, 2000 ----------------- Swiss Franc (CHF), maximum available CHF 4,708 ($2,876) $2,876 USD overdraft, maximum available $1,220 1,220 Polish Zloty (PLN), maximum available PLN 5,000 ($1,207) 1,207 ------ Total $5,303 ====== During 2001, all outstanding overdraft facilities as at 31 December 2000 were repaid. A new overdraft facility was acquired for 4,000,000 Swiss Francs (CHF) which was secured by the Company's inventories. The interest rate was set at 3 month CHF LIBOR plus 1.8%. The other overdraft facilities opened in 2001 were as follows: 18,000,000 Polish Zloty (PLN), which was secured by the (pound)ancut premises, and authorization to the Company's bank accounts and inventories. The interest rate applied was 1 month WIBOR plus 0.7%; 10,000,000 PLN which was secured with authorization to the Company's bank accounts and take over rights of Company inventories, interest rate at 1 month WIBOR + 2%. December 31, 2001 ----------------- Swiss Franc (CHF), maximum available CHF 4,000 ($2,384) $1,191 Polish Zloty (PLN), maximum available PLN 18,000 ($4,515) 4,312 Polish Zloty (PLN), maximum available PLN 10,000 ($2,509) 2,509 ------ Total $8,012 ====== The weighted average interest rate on short-term borrowings at December 31, 2001 and 2000 was approximately 14.33%, and 14.55% respectively. 6. Income Taxes 15 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) Income tax expense for the years ended December 31, 2000 and 2001, is summarized below: 2000 2001 ---- ---- Current Polish income tax expense $298 $545 Deferred Polish income tax benefit (2) (25) ---- ---- Income tax expense $296 $520 ==== ==== Total income tax expense varies from expected income tax expense computed at Polish statutory rates (30% in 2000 and 28% in 2001) as follows:
Year ended December 31, ----------------------- 2000 2001 ---- ---- Tax at Polish statutory rate $269 $485 Increase in deferred tax asset valuation allowance relating primarily to bad debt expense 10 41 Permanent differences between financial and taxable income 17 (6) ---- ---- Income tax expense $296 $520 ==== ====
Significant components of the Company's deferred tax assets is follows: December 31, ------------ 2000 2001 ---- ----- Deferred tax liabilities: Unrealized foreign exchange gains $ -- $(12) Prepaid expenses (14) -- ---- ---- $(14) $(12) Deferred tax assets: Differences on fixed assets resulting from hyperinflationary adjustments and in the tax base $164 $172 Allowance for doubtful accounts receivable 17 76 Unrealized foreign exchange losses 11 -- Accrued expenses and deferred income -- 8 ---- ---- 178 244 Less valuation allowance (12) (53) ---- ---- Net deferred tax asset $166 $191 ==== ==== Consisting of: Current deferred tax asset $ 2 $ 19 Non-current deferred tax asset 164 172 ---- ---- $166 $191 ==== ==== Valuation allowances are provided when it is more likely than not that some or all of the deferred tax assets will not be realized in the future. These evaluations are based on expected future taxable income and expected reversals of the various net deductible temporary differences. The valuation allowance relates primarily to the future tax deductibility of the allowance for bad debts which may not be deductible under local statutes. 16 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) In November 1999, legislation was enacted which reduced the corporate income tax rates in Poland effective January 1, 2000. The tax rate of 32% was reduced to 30% in 2000, 28% in 2001 and 2002, 24% in 2003 and 22% thereafter. The Company's tax liabilities (including corporate income tax, Value Added Tax (VAT), social security and other taxes) may be subject to examinations by Polish tax authorities for up to five years from the end of the year the tax is payable. As the application of tax laws and regulations and transactions are susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determination by the tax authorities. 7. Financial Instruments, Commitments and Contingent Liabilities Financial Instruments With On-Balance Sheet Risk and Their Fair Values Financial instruments with on-balance sheet risk include cash and cash equivalents, accounts receivable, certain other current assets, trade accounts payable, bank loans and overdraft facilities, and other payables. These financial instruments are shown separately in the balance sheets and their carrying values approximate their fair values. This is because substantially all of these financial instruments have short maturity periods or carry interest at rates that approximate current market rates. The Company does not utilize financial derivatives such as foreign currency contracts or interest rate swaps. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable from Polish companies. The Company restricts temporary cash investments to financial institutions with high credit standing. Credit is given to customers only after a thorough review of their credit worthiness. The Company does not normally require collateral with respect to credit sales. As of December 31, 2000 and 2001, the Company had no customers which accounted for more than ten percent of outstanding receivables. The Company has not experienced significant credit losses in the past. Currency Risk A portion of Company's bank loans and financial costs are expected to continue to be, denominated in or indexed to the other non-Polish denominated currency. By contrast, all of the Company's revenue is denominated in Polish zloty. Any devaluation of the Polish zloty against the non-Polish denominated currency, that the Company is unable to offset through price adjustments will require the Company to use a larger portion of its revenue to service its non-zloty denominated obligations. Supply contracts The Company has various agreements covering its sources of supply. Either party on relatively short notice may terminate some of them. Thus, there is a risk that some portion of the Company's supply of products could be curtailed at any time. Management believes that if these arrangements were terminated that alternative suppliers would be found without significant disruption to the business. Lease Obligations The Company has cancelable rental agreements for a number of the branch office locations. Monthly rentals range from approximately $4000 to $8000. All the branch office leases can be terminated by either party within two to three months. The rental expense incurred under operating leases during 2000 and 2001 was as follows: 2000 2001 ---- ---- Rent expense $246 $431 ==== ==== 17 DAMIANEX S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) 8. Related party transactions During 2000, the Company acquired the following business operating assets from the Partnership for cash consideration, which was equivalent to the underlying carrying value in the accounts of the partnership. 2000 ---- Vehicles $156 Computers $ 10 Other $ 12 Inventory $ 60 9. Subsequent Events On April 22, 2002, the shareholders of the Company sold one hundred percent of their shares to Central European Distribution Corporation ("CEDC"), a United States company and to its wholly-owned subsidiary Carey Agri International Poland. The sales price consisted of approximately $7,138,000 of cash and 152,996 unregistered newly issued common shares of CEDC, with a 1-year restriction on sale. On April 13, 2002, a dividend of $740,000 was declared with respect to prior earnings. The dividend is to be paid over five consecutive months, starting May 2002. 18 REPORT OF INDEPENDENT AUDITORS The Board of Directors of AGIS S.A. We have audited the accompanying balance sheets of AGIS S.A. as of December 31, 2000 and 2001 and the related statements of income, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AGIS S.A. at December 31, 2000 and 2001, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG AUDIT Sp. z o.o. Warsaw, Poland April 24, 2002 19 AGIS S.A. BALANCE SHEETS (Monetary amounts in columns expressed in thousands)
December 31, ------------ 2000 2001 -------- -------- ASSETS Current Assets Cash and cash equivalents $ 651 $ 344 Accounts receivable (net of allowance for doubtful accounts of $398,000 and $504,000, respectively) 7,155 6,873 Inventories 2,352 2,536 Deferred income taxes 37 48 Value added tax receivable - 911 Prepaid expenses and other current assets 20 31 -------- -------- Total Current Assets 10,215 10,743 Property, plant, and equipment, net 1,023 1,418 -------- -------- Total Assets $ 11,238 $ 12,161 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Trade accounts payable $ 6,463 $ 6,132 Bank loans and overdraft facilities 3,532 3,755 Income and other taxes payable 163 141 Other current liabilities 123 124 -------- -------- Total Current Liabilities 10,281 10,152 Commitments and contingencies Stockholders' Equity Common Stock ($38.17 par value, 6,000 shares authorized, issued and outstanding at December 31, 2000 and 2001) 229 229 Retained earnings 775 1,780 Accumulated other comprehensive loss (47) - -------- -------- Total Stockholders' Equity 957 2,009 -------- -------- Total Liabilities and Stockholders' Equity $ 11,238 $ 12,161 ======== ========
See accompanying notes. 20 AGIS S.A. STATEMENTS OF INCOME (Monetary amounts in columns expressed in thousands)
Year ended December 31, ----------------------- 2000 2001 ----------- ----------- Net sales $ 49,795 $ 75,449 Cost of goods sold, excluding depreciation 45,849 69,649 ----------- ----------- 3,946 5,800 Selling, general and administrative expenses, excluding depreciation 2,270 2,703 Bad debt expense 115 106 Depreciation of tangible fixed assets 155 165 ----------- ----------- Operating income 1,406 2,826 Non-operating income (expense) Interest expense (421) (665) Interest income 4 12 Other income (expenses), net 14 (26) ----------- ----------- Income before income taxes 1,003 2,147 Income tax expense (362) (650) ----------- ----------- Net income $ 641 $ 1,497 =========== ===========
See accompanying notes. 21 AGIS S.A. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Monetary amounts in columns expressed in thousands)
Common Retained Accumulated Total Stock Earnings other comprehensive income/(loss) ----------------------- ----------- --------------- ------------- No. of Amount shares ---------- --------- Balance at December 31, 1999 6,000 $ 229 $ 272 $ 7 $ 508 Net income 641 - 641 Foreign currency translation adjustment (net of tax) (54) (54) --------- Comprehensive income - - 587 Dividend declared and paid - - (138) - (138) ------- -------- -------- -------- --------- Balance at December 31, 2000 6,000 229 775 (47) 957 Net income - - 1,497 - 1,497 Foreign currency translation adjustment (net of tax) 47 47 --------- Comprehensive income - - 1,544 Dividend declared and paid - - (492) - (492) ------- -------- -------- --------- --------- Balance at December 31, 2001 6,000 $ 229 $ 1,780 $ - $ 2,009 ======= ======== ======== ========= =========
See accompanying notes. 22 AGIS S.A. STATEMENTS OF CASH FLOWS (Amounts in columns expressed in thousands)
Year ended December 31, ----------------------- 2000 2001 -------- -------- Operating Activities Net income $ 641 $ 1,497 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 155 165 Bad debt provision 115 106 Deferred income tax benefit (14) (11) Gain on disposal of fixed assets (10) (4) Changes in operating assets and liabilities: Accounts receivable (1,845) 176 Inventories (386) (184) Prepayments and other current assets (3) (11) Value added tax receivable - (911) Trade accounts payable 69 (331) Income and other taxes payable 38 (22) Other liabilities (68) 52 -------- -------- Net Cash Provided by (Used in) Operating Activities (1,308) 522 Investing Activities Purchase of property and equipment (234) (564) Proceeds from sale of equipment 31 4 -------- -------- Net Cash Used in Investing Activities (203) (560) Financing Activities Proceeds from short-term borrowings 3,367 3,755 Repayment of short-term borrowings (1,656) (3,532) Dividends paid (138) (492) -------- -------- Net Cash Provided by (Used in) Financing Activities 1,573 (269) -------- -------- Net Increase (Decrease) in cash and cash equivalents 62 (307) Cash and cash equivalents at beginning of period 589 651 -------- -------- Cash and cash equivalents at end of period $ 651 $ 344 ======== ======== Supplement cash flow information: Interest paid $ 421 $ 665 Income taxes paid $ 289 $ 678
See accompanying notes. 23 AGIS S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) 1. Organization and Description of Business The business AGIS S.A. was originally organized as a Polish limited liability company during 1990 and on December 15, 1995 was transformed into a Polish joint stock company - AGIS S.A. (the "Company"). The Company's main activities are the wholesale of alcoholic (mainly vodka) beverages. The Company has approximately 200 employees and 14 branch offices, which are located throughout northern-central Poland. The Company's headquarters are located in Torun, Poland and all of the Company's operations are conducted within the boundaries of Poland. Pursuant to Polish statutory requirements, AGIS S.A. may pay annual dividends, based on its audited Polish statutory financial statements, to the extent of its retained earnings as defined. At December 31, 2001, substantially all retained earnings were available for payment of dividends see Note 8. 2. Accounting Policies The significant accounting policies and practices followed by the Company are as follows: Basis of Presentation The Company maintains its books of account and prepares its statutory financial statements in Polish zloties (PLN) in accordance with Polish statutory requirements and the Accounting Act of September 29, 1994. The accompanying financial statements have been adjusted to reflect accounting principles generally accepted in the United States ("US GAAP"). Foreign Currency Translation and Transactions The accompanying financial statements have been prepared in US Dollars. The Company's functional currency is the local currency - Polish Zloty (PLN). Assets and liabilities are translated to US Dollars at the exchange rate in effect at each year end. Income statement accounts are translated to US dollars at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included as a separate component of stockholders' equity. Gains and losses from foreign currency transactions are included in net income for the period. The exchange rate used on zloty denominated transactions and balances for translation purposes as of December 31, 2000 and 2001 for one US dollar was 4.14 PLN and 3.98 PLN, respectively. The exchange rate as of April 24, 2002 was 4.04 PLN. 24 AGIS S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) Property, Plan and Equipment Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Depreciation periods are as follows: Type Depreciation life in years - ----------------------------------------- ---------------------------------- Land - Buildings 25-40 Machinery and Equipment 3-10 Transportation Equipment 2-5 Other 2-10 The Company periodically reviews property, plant and equipment, when indicators of impairment exist and if the value of the asset is impaired, an impairment loss is recognized. The Company recognizes impairment losses on long-lived assets in the event the net book values of such assets exceeds the future undiscounted cash flows attributable to such assets. No such impairment adjustment has been recorded by the Company. Revenue Recognition Revenue is recognized when goods are shipped or delivered to customers in accordance with United States Securities and Exchange Commission Staff Accounting Bulletin 101. Sales are presented net of sales returns and discounts. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market value. Inventories are comprised of spirits and non-alcoholic beverages. The Company has not experienced significant losses from spoilage or obsolescence. Cash and Cash Equivalents Short-term investments that have a maturity of three months or less at the date of purchase are classified as cash equivalents. All of the amounts were located in bank accounts in Poland at December 31, 2001 and 2000. Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences may be material to the financial statements. Income Taxes The Company computes and records income taxes in accordance with the liability method. Comprehensive income Comprehensive income, is defined as all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income includes net income adjusted by, among other items, foreign currency translation adjustments. The currency translation gains and losses on the translation from Polish zloties to US dollars are classified as a separate component of stockholders' equity as "accumulated other comprehensive loss". During the period ended December 31, 2001, the Company incurred foreign currency translation gains of $47,000 (net of tax). The total of the accumulated other comprehensive loss consists of currency translation adjustments ($8,000 net loss, net of taxes) and hyper-inflation adjustments related to assets purchased prior to January 1, 1998 ($8,000 net gain, net of taxes). 25 AGIS S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) Recently issued accounting pronouncements In June 2001, the Financial Accounting Standard Board "FASB" released SFAS 141 "Business Combinations". This statement requires that combinations be accounted for by a single method - the purchase method. This statement also requires among other things, separate recognition of intangible assets apart from goodwill if they meet the prescribed criteria. The provisions of this statement apply to all business combinations initiated after June 30, 2001. In June 2001, the FASB released SFAS 142 "Goodwill and other intangible assets". This statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses among other things, how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. The provisions of this statement are required to be applied starting with fiscal years beginning after December 15, 2001. The Company does not anticipate that these two statements will have a material effect on its financial statements. In August 2001, the FASB released SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". This standard supersedes SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of". This statement removes goodwill from its scope (addressed in SFAS 142), and addresses long-lived assets to be held and used, to be disposed of other than by sale and to be disposed of by sale. The provisions of this statement are required to be applied starting with fiscal years beginning after December 15, 2001. The Company does not anticipate that this statement will have a material effect on its financial statements. 3. Property, Plant and equipment Property, plant and equipment, presented net of accumulated depreciation in the balance sheets, consists of:
December 31, ------------ 2000 2001 ---------------- --------------- Land Buildings $ 12 $ 29 Machinery and equipment 638 901 Transportation equipment 121 156 Other 565 777 147 170 ---------------- --------------- 1,483 2,033 Less accumulated depreciation 460 615 ---------------- --------------- Property, plant and equipment, net $ 1,023 $ 1,418 ================ ===============
26 AGIS S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) 4. Allowances for Doubtful Accounts Changes in the allowance for doubtful accounts were as follows:
Year ended December, 31 ----------------------- 2000 2001 ---------------- --------------- Balance, beginning of year $283 $398 Provision for doubtful accounts 115 106 ----------------------------------- Balance, end of year $398 $504 ===================================
5. Short-term bank loan and overdraft facilities During 2000, the Company had three overdraft facilities as follows: PLN 2,000,000 overdraft facility (secured by bills of exchange and cession rights to receivables, with an interest rate of 3 months WIBOR plus 1.4%); PLN 4,000,000 overdraft facility which was secured similarly. The interest rate applied was 1 month WIBOR plus 0.6%, and a PLN 12,000,000 overdraft facility which was secured with bills of exchange, cession rights to receivables and inventory amounting to PLN 7,000,000, ($1,700,000). Outstanding amounts at December 31, 2000 were as follows: Polish Zloty (PLN) 2,000,000 (US$ 482,000) $ 387 Polish Zloty (PLN) 4,000,000 (US$ 965,000) 483 Polish Zloty (PLN) 12,000,000 (US$ 2,896,000) 2,662 ------------ Total $ 3,532 ============ During 2001, all the outstanding overdraft facilities as of December 31, 2000 were repaid. New overdraft facilities were acquired as follows: PLN 2,000,000 overdraft facility secured by bills of exchange and cession rights to receivables, bearing an interest rate of 3 month WIBOR plus 0.9%; PLN 16,000,000 overdraft facility secured by bills of exchange and cession rights to receivables, bearing interest rate of 1 month WIBOR plus 0.6%; PLN 500,000 overdraft facility which was secured with bills of exchange and the Company's inventory. The interest rate was 1 month WIBOR plus 1%. Outstanding amounts at December 31, 2001 were as follows: Polish Zloty (PLN) 2,000,000 (US$ 501,700) $ 376 Polish Zloty (PLN) 16,000,000 (US$ 4,013,700) 3,358 Polish Zloty (PLN) 500,000 (US$ 125,400) 21 ------------ Total $ 3,755 ============ The weighted average interest rate on short-term borrowings at December 31, 2001 and 2000 was approximately 18.51%, and 22.45% respectively. 27 AGIS S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) 6. Income Taxes Income tax expense for the years ended December 31, 2000 and 2001, is summarized below:
Year ended December 31, ----------------------- 2000 2001 ------------ ----------- Current Polish income tax expense $ 376 $ 661 Deferred Polish tax benefit, net (14) (11) ------------ ----------- Income tax expense $ 362 $ 650 ============ ===========
Total income tax expense varies from expected income tax expense computed at Polish statutory rates (30% in 2000 and 28% in 2001) as follows:
Year ended December 31, ----------------------- 2000 2001 ------------ ----------- Tax at Polish statutory rate $ 301 $ 601 Increase in deferred tax asset valuation allowance relating primarily to bad debt expense 14 21 Permanent differences between financial and taxable income 47 28 ------------ ----------- Income tax expense $ 362 $ 650 ============ ===========
Significant components of the Company's deferred tax assets are as follows:
December 31, ------------ 2000 2001 ------------ ----------- Deferred tax assets: Allowance for doubtful accounts receivable $ 111 $ 141 Accrued expenses, deferred income and prepaids, net 4 6 ------------ ----------- 115 147 Less valuation allowance (78) (99) ------------ ----------- Net deferred tax asset $ 37 $ 48 ============ ===========
Valuation allowances are provided when it is more likely than not that some or all of the deferred tax assets will not be realized in the future. These evaluations are based on expected future taxable income and expected reversals of the various net deductible temporary differences. The valuation allowance relates solely to the estimated future tax deductibility of the allowance for bad debts which may not be deductible under local statutes. In November 1999, legislation was enacted which reduced the corporate income tax rates in Poland effective January 1, 2000 to 30% in 2000, 28% in 2001 and 2002, 24% in 2003 and 22% thereafter. 28 The Company's tax liabilities (including corporate income tax, Value Added Tax (VAT), social security and other taxes) may be subject to examinations by Polish tax authorities for up to five years from the end of the year the tax is payable. As the application of tax laws and regulations and transactions are susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determination by the tax authorities. 29 AGIS S.A. NOTES TO FINANCIAL STATEMENTS (amounts in columns expressed in thousands of USD) 7. Financial Instruments, Commitments and Contingent Liabilities Financial Instruments With On-Balance Sheet Risk and Their Fair Values Financial instruments with on-balance sheet risk include cash and cash equivalents, accounts receivable, certain other current assets, trade accounts payable, bank loans and overdraft facilities, and other payables. These financial instruments are shown separately in the balance sheets and their carrying values approximate their fair values. This is because substantially all of these financial instruments have short maturity periods or carry interest at rates that approximate current market rates. The Company does not utilize financial derivatives. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable from Polish companies. The Company restricts temporary cash investments to financial institutions with high credit standing. Credit is given to customers only after a thorough review of their credit worthiness. The Company does not normally require collateral with respect to credit sales. As of December 31, 2000 and 2001, the Company had no customers which accounted for more than 10 percent of outstanding receivables. The Company has not experienced large credit losses in the past. Supply contracts The Company has various agreements covering its souces of supply. Either party on relatively short notice may terminate some of them. Thus, there is a risk that some portion of the Company's supply of products could be curtailed at any time. Management believes that if these arrangements were terminated that alternative suppliers would be found without significant disruption to the business. Lease Obligations The Company has cancelable rental agreements for a number of the branch office locations. Monthly rentals range from approximately $1000 to $2000. All the branch office leases can be terminated by either party within two to three months. The rental expense incurred under operating leases during 2000 and 2001 was as follows: 2000 2001 --------- --------- Rent expense $ 169 $ 155 ========= ========= 8. Subsequent Events On April 24, 2002, the shareholders of the Company sold all of their shares to Central European Distribution Corporation ("CEDC"), a United States company and to its wholly-owned subsidiary Carey Agri International Poland. The sales price consisted of approximately $4,568,000 of cash and 172,676 unregistered newly issued common shares of CEDC, with a six month restriction on sale. In contemplation of the sale of the Company, all the real estate owned by the Company was sold to the former shareholders for a price of $1,001,923. The Company also sold other assets to the former shareholders (two vehicles). Prior to the sale of the Company, a cash dividend of $ 1,412,415 million was declared. The dividend is to be paid over two equal installments starting on May 31, 2002. 30 Pro Forma Financial Statements Central European Distribution Corporation Pro Forma Combined Condensed Financial Information The unaudited pro forma condensed combined balance sheet information set for below for Central European Distribution (CEDC), AGIS S.A. (purchased on April 24, 2002) and Damianex S.A. (purchased on April 22, 2002) is presented as if these acquisitions had been completed on December 31, 2001. The unaudited condensed combined income statement for 2001 assumes the acquisitions were completed on January 1, 2001. The data is subject to the assumptions and adjustments in the accompanying notes to the pro forma balance sheets and income statements. CEDC has accounted for the acquisitions of Damianex S.A. and AGIS S.A. as purchases in accordance with SFAS 141. Pro forma financial information for CEDC and Damianex S.A. as of December 31, 2001 has been included in an 8K report filed previously with the Securities and Exchange Commission. The pro forma information does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and therefore should be read in conjunction with the historical financial statements of CEDC included in its Annual 2001 Report on Form 10K, and its first quarter 2002 Report on Form 10Q and the historical financial statements of Damaniex S.A. included in the Form 8-K which are on file with the Securities and Exchange Commission and the historical financial statements of AGIS S.A. for 2000 and 2001, included herein. The pro forma adjustments do not reflect operating efficiencies and cost savings that may be achievable with respect to the newly acquired companies. The pro forma adjustments do not include any adjustments to the historical operating data for future changes in selling prices, or operating efficiencies which may arise. A final determination of required purchase accounting adjustments, including the allocation of the purchase price to the assets acquired and liabilities assumed based on their respective estimated fair values, will be made after completion of the escrow period on August 31, 2002 (applicable to the Damianex acquisition), upon final adjustments of the AGIS S.A. purchase price related to old AGIS accounts receivable and upon receipt of independent valuations for both acquisitions. Accordingly, the purchase accounting adjustment(s) and the following pro forma condensed combined balance sheet and income statement information may be revised. CEDC currently knows of no events that would require a substantial change to the preliminary purchase price allocation. The pro forma financial information is presented for illustrative purposes only and is not intended to be indicative of the financial position and operating results that would have occurred if the acquisitions had been consummated in accordance with the assumptions set forth below nor is it intended to be a forecast of future operating results or financial position. 31 Central European Distribution Corporation Unaudited Pro Forma Condensed Combined Balance Sheet Information December 31, 2001 Amounts in columns expressed in thousands of USD
Total Damianex AGIS S.A, Pro Forma Historical Historical Historical S.A. Pro Forma CEDC with CEDC Damianex AGIS S.A. Pro Forma Adjust- AGIS S.A. (A1) S.A. (A2) Adjustments ments and (A3) DAMIANEX S.A. --------------- ------------------------------------------------------ -------------- ASSETS Current Assets Cash and cash equivalents $ 2,466 $ 2,327 $ 344 D 2,500 D 1,800 4,695 D 4,638 D 2,768 D 137 B1 (4,830) B2 (7,455) Accounts receivable, net 38,102 6,964 6,873 51,939 Due to selling shareholders - - - I 869 869 Inventories 9,001 4,356 2,536 15,893 Value added tax receivable - - 911 911 Deferred income taxes and other current assets 2,040 73 79 C2 318 2,510 ------------- ----------------------------------------------------- -------- 51,609 13,720 10,743 138 607 76,817 Property, plant and equipment, net 3,372 1,550 1,418 C2 368 I (719) 5,989 Intangible assets, net 3,002 - - 3,002 Goodwill, net 9,969 - - C2 6,258 C1 6,535 I (108) 22,654 Deferred income taxes and other assets 1,025 172 - I (42) 1,155 -------- -------------------------------------------------- -------- Total Assets $ 68,977 $ 15,442 $ 12,161 $ 6,764 $ 6,273 $109,617 ======== ================================================== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Trade accounts payable $ 29,685 $ 3,346 $ 6,132 C2 740 C1 1,412 41,315 Bank loans and overdraft facilities 9,861 8,012 3,755 21,628 Income and other taxes payable 1,307 308 141 1,756 Other accrued liabilities 1,692 205 124 C1 131 2,152 Current portion of debt and capital leases 2,181 - - 2,181 -------- -------------------------------------------------- -------- 44,726 11,871 10,152 740 1,543 69,032 Non-current deferred taxes - - - C2 92 92 Long-term portion of debt and - capital leases 3,495 - D 2,500 D 1,800 7,795 Temporary equity - - B2 2,228 2,228 Stockholders' Equity Common stock E (1,739) D (229) 46 1,739 229 D 8 B1 2 56 Additional paid-in-capital 15,383 - - D 4,767 D 2,169 25,087 D 2,768 Retained earnings 7,161 1,727 1,780 E (1,727) E (1,780) 7,161 Accumulated other comprehensive income (loss) (1,684) 105 - E (105) (1,684)
32 Central European Distribution Corporation Unaudited Pro Forma Condensed Combined Balance Sheet Information December 31, 2001 Amounts in columns expressed in thousands of USD (150) - - - (150) Less Treasury shares -------- ----------------------------------------------------- -------- 20,756 3,571 2,009 1,204 2,930 30,470 -------- ----------------------------------------------------- -------- Total Liabilities and Stockholders' Equity $ 68,977 $ 15,442 $ 12,161 $ 6,764 $ 6,273 $109,617 ======== ===================================================== ========
33 Central European Distribution Corporation Unaudited Pro Forma Condensed Combined Income Statement Information For the year ended December 31, 2001 Amounts in columns expressed in thousands of USD (except per share data)
Total Pro Forma Historical Historical Historical DAMIANEX AGIS S.A. CEDC with CEDC Damianex AGIS S.A (A2) S.A. Pro Forma AGIS S.A. (A1) S.A (A3) Pro Forma Adjustments and DAMIANEX Adjustments S.A. -------------- ----------- ----------------------------------------------------------------- Net sales $ 178,236 $78,977 $75,449 $332,662 Cost of goods sold, excluding depreciation and amortization 154,622 70,262 69,649 294,533 ------------- ---------- ---------------------------------------------- ----------- 23,614 8,715 5,800 38,129 Selling, general and administrative expenses, 16,445 6,008 2,703 F (41) 25,331 excluding depreciation F1 216 Bad debt expense 711 218 106 1,035 Depreciation of tangible fixed assets 841 258 165 F2 10 F1 (16) 1,258 Amortization of intangible assets 762 - - 762 ------------- ---------- ---------------------------------------------- ----------- Operating income 4,855 2,231 2,826 (10) (159) 9,743 Non-operating income (expense) Interest expense (1,345) (555) (665) D (106) D (77) (2,748) Other income (expense), net 148 55 (14) - 189 ------------- ---------- ---------------------------------------------- ----------- Income before income taxes 3,658 1,731 2,147 (116) (236) 7,184 Income tax (expense) benefit (1,132) (520) (650) G 33 G 66 (2,203) ------------- ---------- ---------------------------------------------- ----------- Net income $ 2,526 $ 1,211 $ 1,497 $ (83) $ (170) $ 4,981 ============= ========== ============================================== =========== Net income per share of common stock, basic $ 0.58 $ 0.93 ============= =========== Net income per share of common stock, diluted $ 0.57 $ 0.89 ============= ===========
34 Central European Distribution Corporation Notes to the Unaudited Pro Forma Condensed Combined Financial Information (Amounts in columns expressed in thousands of USD) A. THESE COLUMNS REPESENT THE HISTORICAL BALANCE SHEETS AND RESULTS OF OPERATIONS AS FOLLOWS: (1)-CEDC - consolidated financial position and operating results as of and for the year end December 31, 2001 (2)-AGIS S.A. - historical financial position and operating results as of and for the year ended December 31, 2001 (3)-Damianex S.A. - historical financial position and operating results as of and for the year ended December 31, 2001 B. ACQUISTIONS (1). AGIS S.A. On April 24, 2002, the CEDC group purchased the outstanding shares of AGIS S.A. Total consideration for the acquisition consisted of the following: Cash consideration to stockholders $ 4,568 *172,676 shares of CEDC common stock 2,171 Acquisition costs (estimated) 262 --------- $ 7,001 ========= * CEDC's common stock was valued at the average stock price a few days before and after the purchase intent was announced and the agreement terms were finalized. The shares issued are not registered and may not be sold without the consent of CEDC for six months subsequent to the acquisition date. 35 Central European Distribution Corporation Notes to the Unaudited Pro Forma Condensed Combined Financial Information (Amounts in columns expressed in thousands of USD) (2). DAMIANEX S.A. On April 22, 2002, the CEDC group purchased the outstanding shares of Damianex S.A. Total consideration for the acquisition consisted of the following: Cash consideration to stockholders $ 7,138 *152,996 shares of CEDC common stock 1,634 Value of put options on 152,996 shares 447 Acquisition costs (estimated) 317 ---------- $ 9,683 ========== * CEDC's common stock was valued at the average stock price a few days before and after the agreement terms were finalized. The shares issued are not registered and may not be sold without the consent of CEDC for one year subsequent to the acquisition date. The sellers were granted an option to sell the acquired CEDC stock ("Put Option") back to the Company at a price of $12.00 per share during the period from April 23, 2003 to April 29, 2003. If the put lapses, the shares will be transferred to equity at the accreted value. If the shares are purchased by the Company they will be treated as treasury shares. These shares have been disclosed in the pro forma condensed combined balance sheet as temporary equity above stockholders' equity. Prior to the exercise option period (April 23, 2003 to April 29, 2003) these shares will be considered in the calculation of diluted earnings per share (unless they are anti-dilutive). The put options have been valued at approximately $447,000 by an independent appraiser. As part of the Agreement, approximately $3,200,000 was transferred to an escrow account. The funds in the escrow account will be paid to the sellers when CEDC receives approval from the Polish Government in regards to the ownership of the real estate element of the transaction (estimated to be approximately 3 months). If approval is not received, the real estate will be separated from the Company and sold to a mutually agreed upon third party for a mutually agreed price. As part of the sale of the real estate, a lease agreement would be established for a period of three to five years with the buyers which shall not exceed the market price applicable in the region. If the real estate is not sold within six months from the day the Polish Government informs the parties of its refusal, the funds in the escrow account will be transferred back to CEDC with 50% of the interest earned on the escrowed amount. 36 Central European Distribution Corporation Notes to the Unaudited Pro Forma Condensed Combined Financial Information (Amounts in columns expressed in thousands of USD) C. DETERMINATION OF GOODWILL (1) AGIS S.A. In connection with the preparation of the pro forma condensed combined balance sheet information at December 31, 2001, the book values of certain assets were adjusted to estimated fair values as follows: Cost of acquisition $7,001 Historical net book value at December 31, 2001 (*597) **Other current liabilities 131 --------- $6,535 ***(108) --------- Preliminary goodwill $6,427 ========= * Assuming the AGIS acquisition was finalized on December 31, 2001, the historical net book of $2,009,000 has been reduced to reflect a dividend declared in April 2002 in regards to prior year earnings for the amount of approximately $1,412,000. **Assuming the acquisition was finalized on December 31, 2001, the goodwill was adjusted to reflect the estimated acquired goodwill determined as of April 24, 2002. *** This amount relates to the elimination of deferred income (net of tax) in regards to the sale of real estate as described in Note I. The $108,000 deferred gain would never be recognized in the consolidated financial statements of CEDC as it was pre-acquisition. Prior to the finalization of the business combination agreement all the real estate (land and buildings) and certain vehicles were sold to the former shareholders, see Note I. CEDC believes fair market value of the remaining assets is equal to their carrying values, this will be confirmed upon finalization of the appraisal of business combination assets. (2) DAMIANEX S.A. The book values of certain assets of the Damianex S.A. acquisition were adjusted to estimated fair values as follows (assuming the Polish Government approves the real estate element of the transaction): Cost of acquisition $ 9,683 Historical net book value at December 31, 2001 *2,831 To increase land to estimated fair value ***165 To increase buildings to estimated fair value ***203 To record deferred taxes on increase of book values of land and buildings ***(92) Other current assets **318 -------- --------- Preliminary goodwill $ 6,258 =========
* Assuming the Damianex acquisition was finalized on December 31, 2001, the historical net book has been reduced to reflect a dividend declared in April 2002 in the amount of $740,000. ** Assuming the acquisition was finalized on December 31, 2001, the goodwill was adjusted to reflect the estimated acquired goodwill determined as of April 22, 2002. *** Assuming the Polish Government approves the real estate element of the transaction. 37 Central European Distribution Corporation Notes to the Unaudited Pro Forma Condensed Combined Financial Information Amounts in columns expressed in thousands of USD In accordance with SFAS 142, goodwill is no longer amortized. The allocation of the excess purchase price to goodwill may be revised when the Company receives the independent valuations in regards to the acquisitions (Damianex S.A. and AGIS S.A.) of the tangible and intangible business assets acquired and upon completion of the escrow period for the Damianex S.A. acquisition and final determination of the purchase price for AGIS for the effects of old accounts receivable. CEDC does not expect material adjustments from the completion of this process. D. FINANCING OF ACQUISITIONS The Company secured additional long-term borrowings of approximately $4,300,000 to finance the acquisitions. The interest rate on the additional borrowings is LIBOR plus 2%. The average LIBOR plus 2% rate for 2001 was approximately 4.25%. The Company allocated $1,800,000 and $2,500,000 of additional borrowing for the purchases of AGIS S.A. and Damianex S.A., respectively. The additional interest expense for AGIS S.A. in regards to the pro forma condensed combined income statement information is approximately $77,000 for the year end December 31, 2001. The additional interest expense for Damianex S.A. in regards to the pro forma condensed combined income statement information is approximately $106,000 for the year ended December 31, 2001. The loan is repayable in quarterly installments commencing during the second quarter of 2003. On March 28, 2002, CEDC finalized the private placement of 800,000 shares of the Company's common stock. The Company received approximate net proceeds of $7,543,000 from this private placement, of which $7,543,000 was used as follows: Acquisition of Damaniex S.A. $4,638 Acquisition of AGIS S.A. 2,768 Other 137 --------- $7,543 ========= E. ELIMINATION OF ACQUIRED COMPANIES SHAREHOLDERS' EQUITY ACCOUNTS
AGIS S.A. Damianex S.A. December 31, 2001 December 31, 2001 --------------------- -------------------- Common Stock $ 229 $1,739 Retained earnings 1,780 1,727 Accumulated other comprehensive loss, (net of tax) - 105 --------------------- -------------------- $ 2,009 $3,571 ===================== ====================
38 Central European Distribution Corporation Notes to the Unaudited Pro Forma Condensed Combined Financial Information Amounts in columns expressed in thousands of USD (except per share data) F. PROFORMA EXPENSE ADJUSTMENTS (1). CEDC did not acquire any of the AGIS buildings. As a result CEDC entered into lease agreements with the former shareholders of AGIS to lease the buildings for an unspecified period. This pro forma entry reflects the elimination with respect to the depreciation of the buildings and the addition of rent expense on the lease referred to above. Depreciation in the amount of $16,000 has been reduced for the year ended December 31, 2001. Rent expense of $216,000 has been recognized for the year ended December 31, 2001. Additionally, real estate taxes and maintenance costs applicable to the buildings were eliminated, the expenses eliminated were $41,000 for the year ended December 31, 2001. (2). Damianex S.A. - The increase in the fair market values of the acquired buildings subsequently increased the depreciation expense for the year ended 2001. The depreciation expense was calculated based on the estimated average remaining life of buildings (approximately 20 years) which is approximately 5%. The additional depreciation expense for the year ended December 31, 2001 is approximately $10,000. G. PRO FORMA INCOME TAX ADJUSTMENTS
AGIS S.A. Damianex S.A. Year ended December 31, Year ended December 31, 2001 2001 ----------------------- ----------------------- Interest expense $ 77 $ 106 Rent expense 216 - Real estate tax and repairs and maintenance (41) - Depreciation (16) 10 ----------------------- ----------------------- Additional tax deductible expenditures 236 116 Tax rate for period 28% 28% ----------------------- ----------------------- Total pro forma tax expense $ 66 $ 33 ======================= ======================= Goodwill is not tax deductible.
H. PERSONNEL REDUCTIONS CEDC's management does not presently anticipate any significant personnel reductions as a result of the acquisitions. I. SALE OF REAL ESTATE As part of the AGIS purchase agreement, all the real estate in the Company was sold to the former shareholders. The amount received in excess of the carrying value of the real estate of $150,000 ($108,000 net of tax) was recorded as a reduction of the purchase price. 39 Central European Distribution Corporation Notes to the Unaudited Pro Forma Condensed Combined Financial Information Amounts in columns expressed in thousands of USD (except per share data) J. PRO FORMA NET INCOME PER SHARE INFORMATION Pro forma net income per share information considers the effects of shares issued in connection with the transaction as though they were outstanding during the periods presented. The shares used for these calculations were as follows: Year end December 31, 2001 ------------------------- Historical Pro forma ---------- --------- Basic 4,359 *5,332 Dilutive 4,447 **5,583 * Includes the following: 800,000 common shares issued in regards to the private placement offering 172,676 common shares issued in regards to the AGIS acquisition ** The pro forma diluted earnings per share are calculated using the pro forma shares indicated above. The pro forma diluted earnings per share calculation does not include the 163,000 incremental shares as a result of applying the reverse treasury stock method to the 152,996 common shares with attached put options issued in connection with the Damianex acquisition. The result of this is anti-dilutive. 40 -----END PRIVACY-ENHANCED MESSAGE-----