3.	RESTATEMENT OF UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In April 2012, the Company changed its senior management at the Russian Alcohol Group (“RAG”), its main operating subsidiary in Russia. Following this change, the Company’s senior management requested that the new RAG senior management team review RAG’s business operations and internal controls, including an assessment of the resources and needs of the corporate finance and reporting departments, as identified in Item 9A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 initially filed with the Securities Exchange Commission (“SEC”) on February 29, 2012.

Based on the preliminary findings of that review, CEDC’s senior management concluded that the Company’s financial statements for the years ended December 31, 2010 and 2011 should no longer be relied upon because of a failure to reflect the timely reporting of the full amount of retroactive trade rebates and trade marketing refunds provided to RAG’s customers in Russia.

Thereafter, the Audit Committee of the Company’s Board of Directors initiated an internal investigation, with the assistance of outside counsel and forensic accountants engaged by outside counsel, regarding the Company’s retroactive trade rebates, trade marketing refunds and related accounting issues. The Audit Committee, through its counsel, voluntarily notified the SEC of the investigation and is cooperating with the SEC. The Audit Committee has completed its accounting investigation, and has identified accounting irregularities at RAG, which resulted in the understatement of retroactive trade rebates and trade marketing refunds, as well as certain other errors that were concealed from both the Company’s senior management and the independent auditors.

As a result of that review, the Company determined that certain retroactive trade rebates provided to RAG’s customers in Russia were not recorded, and therefore the consolidated sales for the three and nine months ended September 30, 2011 and the year ended December 31, 2010 were overstated by $7.6, $19.8 and $11.3 million, respectively and the accounts receivable as at September 30, 2011 and December 31, 2010 were overstated by $33.6 million and $15.6 million, respectively affecting other various lines for $2.5 and $4.3 million, respectively. Moreover, as a result of the inconsistent presentation of retroactive trade rebates accounts receivable were overstated as at December 31, 2010 by $22.5 million and accounts payable and other accrued liabilities were overstated by $17.5 million and $5.0 million, respectively. Furthermore, the Company improperly accounted for promotional compensation granted to customers and as a result the accounts receivable as at September 30, 2011 and December 31, 2010 were additionally overstated by $9.1 and $5.5 million respectively, the consolidated sales for the three and nine months ended September 30, 2011 and for the year ended December 31, 2010 were overstated by $5.5, $12.0 and $7.5 million, respectively, and the operating expenses for the three and nine months ended September 30, 2011 were overstated by $3.0 and $7.2 million, respectively.

As of December 31, 2010 expense accruals of $6.3 million were wrongly presented as accounts payables, causing the accounts payables to be overstated and accruals to be understated by the same amount. Furthermore, goodwill increased by $2.7 million, as a result of unrecognized impairment of property, plant and equipment on acquisition of RAG in 2008. In addition, identified unrecorded liabilities resulted in an understatement of other accrued liabilities and trade accounts payable by $3.7 million and $1.7 million, respectively, resulting from number of individually immaterial adjustments.

In addition to the adjustments described above as of September 30, 2011 the Company:

decreased accounts receivable by additional $25.6 million (in addition to the $33.6 million relating to unrecorded retroactive trade rebates and $9.1 million relating to promotional compensation granted described above); this adjustment resulted mainly from a cut-off error of $22.8 million, where revenue for the fourth quarter of 2011 was recognized in September 2011;

increased inventories by $16.3 million, resulting mainly from the cut-off error described above;

decreased taxes other than income taxes payable by $2.6 million, which is also a result of the above described cut-off error;

increased goodwill by $3.6 million, of which $2.7 million relates to unrecognized impairment of property, plant and equipment on acquisition of RAG in 2008 (adjusted also as of December 31, 2010);

In the unaudited condensed consolidated statement of operations for the three months ended September 30, 2011 the Company:

decreased sales by additional $5.6 million (in addition to the $7.6 million relating to unrecorded retroactive trade rebates and $5.5 million relating to promotional compensation granted to customers described above) mainly due to sales cut-off error in the amount of $3.9 million;

decreased the cost of goods sold by $4.3 million mainly due to sales cut-off error in the amount of $3.3 million.

In the unaudited condensed consolidated statement of operations for the nine months ended September 30, 2011 the Company:

decreased sales by additional $19.1 million (in addition to the $19.8 million relating to unrecorded retroactive trade rebates and $12.0 million relating to promotional compensation granted to customers described above) mainly due to sales cut-off error in the amount of $19.1 million;

decreased the cost of goods sold by $19.0 million mainly due to sales cut-off error in the amount of $16.5 million and other individually immaterial adjustments;

As a result, the Audit Committee of the Company’s Board of Directors concluded that the Company should restate its consolidated balance sheets as of September 30, 2011 (unaudited) and December 31, 2010, and the related consolidated statements of changes in stockholders’ equity, the unaudited condensed consolidated statements of operations for three and nine months ended September 30, 2011 and unaudited condensed consolidated statement of cash flows for nine months ended September 30, 2011. The unaudited condensed consolidated statements of operations for three and nine months ended September 30, 2010 and unaudited condensed consolidated statement of cash flows for nine months ended September 30, 2010 were not affected by the restatement.

In addition to the errors and irregularities described above, the Company also included in the restated consolidated financial statements other adjustments, which are immaterial individually and in the aggregate, related primarily to previously unrecorded adjustments identified during the preparation of the consolidated financial statements at September 30, 2011 and December 31, 2010, as well as, write-off of non-recoverable VAT and prepayments, recording provisions for obsolete inventory and accruing for certain other operating expenses. Furthermore, the Company has expanded certain disclosure items, related to income and deferred taxes in Note 15.

The impact of the corrections of the errors discussed above on the consolidated balance sheets, consolidated statements of operations, consolidated statements of cash flow and consolidated statements of changes in stockholders’ equity is shown in the accompanying tables (in thousands, except for per share data).

Condensed Consolidated Statement of Operations – Three months ended September 30, 2011 (unaudited)


	Three months ended September 30, 2011 As reported			Adjustments			Three months ended September 30, 2011 Restated

Sales	$	451,592		$	(18,650	)	$	432,942
Excise taxes		(222,742	)		(562	)		(223,304	)

Net sales		228,850			(19,212	)		209,638
Cost of goods sold		135,742			(4,315	)		131,427


Gross profit		93,108			(14,897	)		78,211


Operating expenses		63,757			(2,047	)		61,710
Impairment charge		674,515			0			674,515


Operating income		(645,164	)		(12,850	)		(658,014	)

Non operating income / (expense), net
Interest income / (expense), net		(29,033	)		910			(28,123	)
Other financial income / (expense), net		(170,809	)		472			(170,337	)
Other non operating income / (expense), net		(11,633	)		950			(10,683	)


Income / (loss) before taxes and equity in net income from unconsolidated investments		(856,639	)		(10,518	)		(867,157	)


Income tax benefit / (expense)		16,789			1,633			18,422


Net income / (loss)	$	(839,850	)	$	(8,885	)	$	(848,735	)

Net income / (loss) from operations per share of common stock, basic	$	(11.59	)	$	(0.12	)	$	(11.71	)
Net income / (loss) from operations per share of common stock, diluted	$	(11.59	)	$	(0.12	)	$	(11.71	)
Other comprehensive income / (loss), net of tax:
Foreign currency translation adjustment		(221,597	)		6,587			(215,010	)

Comprehensive income / (loss) attributable to the Company	$	(1,061,447	)	$	(2,298	)	$	(1,063,745	)

Condensed Consolidated Statement of Operations – Nine months ended September 30, 2011 (unaudited)


	Nine months ended September 30, 2011 As reported			Adjustments			Nine months ended September 30, 2011 Restated

Sales	$	1,227,732		$	(50,871	)	$	1,176,861
Excise taxes		(630,214	)		(299	)		(630,513	)

Net sales		597,518			(51,170	)		546,348
Cost of goods sold		359,831			(19,011	)		340,820


Gross profit		237,687			(32,159	)		205,528


Operating expenses		190,052			(9,216	)		180,836
Gain on remeasurement of previously held equity interests		(7,898	)		0			(7,898	)
Impairment charge		674,515			0			674,515


Operating income		(618,982	)		(22,943	)		(641,925	)

Non operating income / (expense), net
Interest income / (expense), net		(84,246	)		910			(83,336	)
Other financial income / (expense), net		(121,015	)		208			(120,807	)
Other non operating income / (expense), net		(15,270	)		950			(14,320	)


Income / (loss) before taxes and equity in net income from unconsolidated investments		(839,513	)		(20,875	)		(860,388	)


Income tax benefit / (expense)		12,612			1,620			14,232
Equity in net income / (losses) of affiliates		(8,814	)		868			(7,946	)


Net income / (loss)	$	(835,715	)	$	(18,387	)	$	(854,102	)

Net income / (loss) from operations per share of common stock, basic	$	(11.60	)	$	(0.25	)	$	(11.85	)
Net income / (loss) from operations per share of common stock, diluted	$	(11.60	)	$	(0.25	)	$	(11.85	)
Other comprehensive income / (loss), net of tax:
Foreign currency translation adjustments		(53,428	)		3,018			(50,410	)

Comprehensive income / (loss) attributable to the Company:	$	(889,143	)	$	(15,369	)	$	(904,512	)

Condensed Consolidated Balance Sheet – September 30, 2011 (unaudited)


	Balance as at September 30, 2011 As Reported			Adjustments			Balance as at September 30, 2011 Restated
Current Assets
Cash and cash equivalents	$	111,191		$	0		$	111,191
Accounts receivable, net of allowance for doubtful accounts of $27,355 as reported and $28,473 as restated		304,808			(68,322	)		236,486
Inventories		105,161			16,280			121,441
Prepaid expenses and other current assets		45,539			553			46,092
Deferred income taxes		45,437			223			45,660
Debt issuance costs		2,972			0			2,972


Total Current Assets		615,108			(51,266	)		563,842
Intangible assets, net		471,695			0			471,695
Goodwill, net		1,064,729			3,649			1,068,378
Property, plant and equipment, net		184,014			(2,829	)		181,185
Deferred income taxes		57,056			0			57,056
Debt issuance costs		14,283			0			14,283
Non-current assets held for sale		676			0			676


Total Non-Current Assets		1,792,453			820			1,793,273


Total Assets	$	2,407,561		$	(50,446	)	$	2,357,115


Current Liabilities
Trade accounts payable	$	88,424		$	(700	)	$	87,724
Bank loans and overdraft facilities		54,213			0			54,213
Income taxes payable		1,070			0			1,070
Taxes other than income taxes		92,233			(2,589	)		89,644
Other accrued liabilities		54,804			(285	)		54,519
Current portions of obligations under capital leases		931			0			931


Total Current Liabilities		291,675			(3,574	)		288,101
Long-term debt, less current maturities		18,738			0			18,738

Long-term obligations under capital leases		838			0			838

Long-term obligations under Senior Notes		1,262,087			0			1,262,087
Long-term accruals		1,991			(28	)		1,963
Deferred income taxes		131,459			0			131,459


Total Long-Term Liabilities		1,415,113			(28	)		1,415,085

Stockholders’ Equity
Common Stock ($0.01 par value, 120,000,000 shares authorized, 72,739,924 shares issued and outstanding)		728			0			728
Preferred Stock ($0.01 par value, 7,000,000 shares authorized, none issued)		0			0			0
Additional paid-in-capital		1,368,864			0			1,368,864
(Accumulated deficit)/Retained earnings		(675,465	)		(53,137	)		(728,602	)
Accumulated other comprehensive income		6,796			6,293			13,089
Less Treasury Stock at cost (246,037 shares)		(150	)		0			(150	)


Total Stockholder’s Equity		700,773			(46,844	)		653,929


Total Liabilities and Stockholders’ Equity	$	2,407,561		$	(50,446	)	$	2,357,115

Condensed Consolidated Statements of Cash Flow – Nine months ended September 30, 2011 (unaudited)


	Nine months ended September 30, 2011 As reported			Adjustments			Nine months ended September 30, 2011 Restated
Cash flows from operating activities of continuing operations
Net loss	$	(835,715	)	$	(18,387	)	$	(854,102	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		15,328			0			15,328
Deferred income taxes		(3,683	)		(1,455	)		(5,138	)
Unrealized foreign exchange (gains) / losses		118,574			(208	)		118,366
Stock options fair value expense		1,998			0			1,998
Equity (income)/loss in affiliates		8,814			(868	)		7,946
Gain on fair value remeasurement of previously held equity interest		(6,397	)		0			(6,397	)
Impairment charge		674,515			0			674,515
Impairments related to assets held for sale		7,355			0			7,355
Other non-cash items		5,899			271			6,170
Changes in operating assets and liabilities:
Accounts receivable		219,475			26,678			246,153
Inventories		10,860			(20,043	)		(9,183	)
Prepayments and other current assets		(6,199	)		(1,502	)		(7,701	)
Trade accounts payable		(65,246	)		22,728			(42,518	)
Other accrued liabilities and payables (including taxes)		(99,422	)		(6,974	)		(106,396	)

Net cash provided by operating activities from continuing operations		46,156			240			46,396
Cash flows from investing activities of continuing operations
Purchase of fixed assets		(5,391	)		(31	)		(5,422	)
Purchase of intangibles (licenses)		(693	)		0			(693	)
Purchase of trademarks		(17,473	)		0			(17,473	)
Acquisitions of subsidiaries, net of cash acquired		(24,124	)		(1	)		(24,125	)

Net cash provided by / (used in) investing activities from continuing operations		(47,681	)		(32	)		(47,713	)
Cash flows from financing activities of continuing operations
Borrowings on bank loans and overdraft facility		36,027			0			36,027
Payment of bank loans, overdraft facility and other borrowings		(37,892	)		0			(37,892	)
Decrease in short term capital leases payable		(34	)		0			(34	)
Options exercised		72			0			72

Net cash used in financing activities from continuing operations		(1,827	)		0			(1,827	)
Currency effect on brought forward cash balances		(7,781	)		0			(7,781	)
Net increase/(decrease) in cash		(11,133	)		208			(10,925	)
Cash and cash equivalents at beginning of period		122,324			(208	)		122,116

Cash and cash equivalents at end of period	$	111,191		$	0		$	111,191

Supplemental Schedule of Non-cash Investing Activities
Common stock issued in connection with investment in subsidiaries	$	23,175		$	0		$	23,175

Supplemental disclosures of cash flow information
Interest paid	$	50,574		$	0		$	50,574
Income tax paid	$	5,770		$	0		$	5,770

Condensed Consolidated Statements of Changes in Stockholders’ Equity – September 30, 2011 (unaudited)


	Balance as at September 30, 2011 as reported			Adjustments			Balance as at September 30, 2011 restated
Common Stock	$	728		$	0		$	728
Less Treasury Stock at cost		(150	)		0			(150	)
Additional Paid-in Capital		1,368,864			0			1,368,864
Accumulated deficit		(675,465	)		(53,137	)		(728,602	)
Accumulated other comprehensive income of continuing operations		6,796			6,293			13,089

Total	$	700,773		$	(46,844	)	$	653,929

Consolidated Balance Sheet – December 31, 2010


	Balance as at December 31, 2010 As Reported			Adjustments			Balance as at December 31, 2010 Restated
Current Assets
Cash and cash equivalents	$	122,324		$	(208	)	$	122,116
Accounts receivable, net of allowance for doubtful accounts of $20,357 as reported and $20,863 as restated		478,379			(45,211	)		433,168
Inventories		93,678			(1,804	)		91,874
Prepaid expenses and other current assets		35,202			(1,448	)		33,754
Deferred income taxes		80,956			0			80,956
Debt issuance cost		2,739			0			2,739


Total Current Assets		813,278			(48,671	)		764,607

Intangible assets, net		627,342			0			627,342
Goodwill, net		1,450,273			2,713			1,452,986
Property, plant and equipment, net		192,863			(2,983	)		189,880
Deferred income taxes		44,028			0			44,028
Equity method investment in affiliates		243,128			(118	)		243,010
Debt issuance costs		16,656			0			16,656
Non-current assets held for sale		8,614			0			8,614


Total Non-Current Assets		2,582,904			(388	)		2,582,516


Total Assets	$	3,396,182		$	(49,059	)	$	3,347,123


Current Liabilities
Trade accounts payable	$	114,958		$	(22,118	)	$	92,840
Bank loans and overdraft facilities		45,359			0			45,359
Income taxes payable		5,102			606			5,708
Taxes other than income taxes		182,232			111			182,343
Other accrued liabilities		55,070			2,831			57,901
Current portions of obligations under capital leases		758			0			758
Deferred consideration		5,000			0			5,000


Total Current Liabilities		408,479			(18,570	)		389,909

Long-term obligations under capital leases		1,175			0			1,175
Long-term obligations under Senior Notes		1,250,758			0			1,250,758
Long-term accruals		2,572			195			2,767
Deferred income taxes		168,527			791			169,318


Total Long Term Liabilities		1,423,032			986			1,424,018

Stockholders’ Equity
Common Stock ($0.01 par value, 120,000,000 shares authorized, 70,752,670 shares issued and outstanding)		708			0			708
Additional paid-in-capital		1,343,639			0			1,343,639
Retained earnings		160,250			(34,750	)		125,500
Accumulated other comprehensive income		60,224			3,275			63,499
Less Treasury Stock at cost (246,037 shares)		(150	)		0			(150	)


Total Stockholder’s Equity		1,564,671			(31,475	)		1,533,196


Total Liabilities and Stockholders’ Equity	$	3,396,182		$	(49,059	)	$	3,347,123

Consolidated Statements of Changes in Stockholders’ Equity – December 31, 2010


	Balance as at December 31, 2010 As Reported			Adjustments			Balance as at December 31, 2010 Restated
Common Stock	$	708		$	0		$	708
Less Treasury Stock at cost		(150	)		0			(150	)
Additional Paid-in Capital		1,343,639			0			1,343,639
Retained Earnings		160,250			(34,750	)		125,500
Accumulated other comprehensive income of continuing operations		60,224			3,275			63,499

Total	$	1,564,671		$	(31,475	)	$	1,533,196