Sale of accounts receivable

12 Months Ended

Dec. 31, 2012

Sale of accounts receivable

4. Sale of accounts receivable

On February 24, 2011, two subsidiaries of the Company, namely CEDC International Sp. z o.o. (“CEDC International”) and Polmos Białystok S.A. (“Polmos Bialystok”), entered into factoring arrangements (“Factoring Agreements”) with ING Commercial Finance Polska SA (“ING Polska”) for the sale up to 290.0 million Polish zlotys (approximately $84.9 million) of receivables. On January 1, 2012, the total limit under the Factoring Agreements was reduced from 290.0 million Polish zlotys ($93.6 million) to 250.0 million Polish zlotys ($80.7 million) and from March 1, 2012 it was further reduced to 220.0 million Polish zlotys ($71.0 million). The Factoring Agreements were to mature on April 30, 2012, however on April 25, 2012 the Company extended these agreements until September 30, 2012 with further decrease of the total limit to 200.0 million Polish zlotys (approximately $64.5 million). On September 28, 2012 the total limit under the Factoring Agreements was reduced to 170.0 million Polish zlotys (approximately $54.8 million). On December 24, 2012 the Company further extended the Factoring Agreements with decrease the total limit to 130.0 million Polish zloty (approximately $41.9 million). The extension assumed financing of receivables to be continued till end of February 2013, and thereafter the Factoring Agreements were terminated.

As of December 31, 2012 and 2011, the total balance of financing obtained through factoring amounted to 126.1 and 279.3 million Polish zlotys, respectively (approximately $40.7 million and $81.7 million) of the 130.0 and 290.0 million Polish zlotys limit available, respectively.

For the twelve months ended December 31, 2012 and 2011, the Company sold receivables in the amount of 1,272.0 and 1,364.6 million Polish zlotys ($410.4 and $399.3 million) and recognized a loss on the sale in the statement of operations and comprehensive income in the amount of 10.7 and 9.2 million Polish zlotys ($3.4 and $2.8 million), respectively.

Furthermore, in June 2011 and in January 2012 the Company signed factoring agreement with ING Polska and Bank Handlowy w Warszawie Spółka Akcyjna (“Bank Handlowy”), respectively. These agreements allow the Company to sell receivable of three of Company’s distributors named in these agreements. There is no financing limit in any of the two agreements. As a result of the agreement with ING Polska, during the period ended December 31, 2012 the Company sold receivables in the amount of 128.8 million Polish zlotys ($41.6 million) and recognized a loss on the sale in the statement of operations and comprehensive income in the amount of 0.8 million Polish zlotys ($0.3 million). As a result of the agreement with Bank Handlowy, during the period ended December 31, 2012 the Company sold receivables in the amount of 96.5 million Polish zlotys ($31.1 million) and recognized a loss on the sale in the statement of operations and comprehensive income in the amount of 0.4 million Polish zlotys ($0.1 million).

Additionally, in August 2012, the Company signed an agreement with its distributor and Bank Zachodni WBK S.A. for non-recourse factoring of the receivables from the distributor and its related parties. There is no financing limit in this agreement. As a result of this agreement, during the year ended December 31, 2012 the Company sold receivables in the amount of 399.0 million Polish zlotys ($128.7 million), and recognized a loss on the sale in the statement of operations and comprehensive income in the amount of 4.0 million Polish zlotys ($1.3 million). The Company has no continuing involvement with the sold non-recourse receivables.

As of December 31, 2012, the liabilities from factoring with recourse amounted to 8.6 million Polish zlotys ($2.8 million) and are included in the short term bank loans in the balance sheet. Corresponding receivables from factoring with recourse are presented under accounts receivable in the balance sheet.