Organization and Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Organization and Description of Business

Organization and Description of Business

Central European Distribution Corporation (“CEDC”), a Delaware corporation incorporated on September 4, 1997, and its subsidiaries (collectively referred to as “we,” “us,” “our,” or the “Company”) operate primarily in the alcohol beverage industry. We are one of the largest producers of vodka in the world and are Central and Eastern Europe’s largest integrated spirit beverages business, measured by total volume, with approximately 34.5 million nine-liter cases produced and distributed in 2012. Our business primarily involves the production and sale of our own spirit brands (principally vodka), and the importation on an exclusive basis of a wide variety of spirits, wines and beers. Our primary operations are conducted in Poland, Russia and Hungary. Additionally in 2010, we opened up a new operation in Ukraine to import and sell our vodkas, primarily Green Mark. We have six operational manufacturing facilities located in Poland and Russia.

In Poland, we are one of the largest vodka producers with a brand portfolio that includes Absolwent, Żubrówka, Żubrówka Biała, Bols, Palace and Soplica brands, each of which we produce at our Polish distilleries. We produce and sell vodkas primarily in three of four vodka sectors: premium, mainstream and economy. In Poland, we also own and produce Royal, the top-selling vodka in Hungary.

We are also the largest vodka producer in Russia, the world’s largest vodka market. Our Green Mark brand is the top-selling mainstream vodka in Russia and the second-largest vodka brand by volume in the world, and our Parliament and Zhuravli brands are two top-selling sub-premium vodkas in Russia.

As well as sales and distribution of its own branded spirits, the Company is a leading exclusive importer of wines and spirits in Poland, Russia and Hungary.

Liquidity

Liquidity

These consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As discussed further in Note 13 to CEDC’s consolidated financial statements, on March 15, 2013, the Company failed to pay $257.9 million principal due on the 2013 Convertible Senior Notes (“2013 Notes”). Under the terms of the 2013 Notes Indenture, the failure to pay principal when due constituted an Event of Default.

Under Section 6.1(5)(a) of the 2016 Notes Indenture, the failure to pay principal when due on the 2013 Notes constituted an Event of Default under the 2016 Senior Secured Notes (the “2016 Notes”) Indenture. Under Section 6.2 of the 2016 Notes Indenture, if an Event of Default occurs and is continuing, then the Trustee or holders of not less than 25% of the aggregate principal amount of the outstanding 2016 Notes may, and the Trustee upon request of such holders shall, declare the principal plus any accrued and unpaid interest on the 2016 Notes to be immediately due and payable.

On March 18, 2013, the Company failed to pay $20.0 million due under the RTL Notes (the “RTL Notes”).

Following the effectiveness of the Plan of Reorganization all amounts due by the Company under the 2013 Notes, the 2016 Notes, the RTL Notes and also $50.0 million of secured credit facility provided by RTL to CEDC pursuant to facility agreement dated March 1, 2013 (the “RTL Credit Facility”) were cancelled and are no longer due.

Chapter 11 Filing

On April 7, 2013, the Company and its two wholly owned subsidiaries, CEDC Finance Corporation International Inc. and CEDC Finance Corporation LLC (the “Debtors”) filed Chapter 11 Cases under the Bankruptcy Code in the Bankruptcy Court in Delaware in order to effectuate the Debtors’ prepackaged Plan of Reorganization. The Chapter 11 Cases were jointly administered under the caption “In re: Central European Distribution Corporation, et al.” Case No. 13-10738. The Plan of Reorganization was confirmed by the Bankruptcy Court on May 13, 2013. The Effective Date of the Plan was June 5, 2013.

The Company believes that this successful restructuring will improve its financial strength and flexibility and enable it to focus on maximizing the value of its strong brands and market position. The Chapter 11 Cases and the Plan of Reorganization which were approved by the Bankruptcy Court, eliminated approximately $665.2 million in debt from the Company’s balance sheet. The Plan of Reorganization did not involve the Company’s operating subsidiaries in Poland, Russia, Ukraine or Hungary and had no impact on their business operations. Operations in these countries are independently funded and continued to generate revenue during this process. Under the proposed Plan of Reorganization, obligations to employees, vendors, credit support providers and government authorities were not affected and were honored in the ordinary course without interruption.

Background to Chapter 11 Filing

Prior to filing, the Chapter 11 cases the management of the Company, in consultation with the Board of Directors and with the assistance of financial and legal advisors, reviewed the Company’s alternatives in light of its financial obligations, in particular the 2013 Notes. The Board and the management of the Company evaluated various alternatives and the Company and its advisors worked to further develop those alternatives to address the maturity of the 2013 Notes, including a strategic alliance with Mr. Roustam Tariko other possible strategic investments, the sale of certain assets and an exchange for the 2013 Notes.

Following this work and in light of the impending maturity of the 2013 Notes, on February 25, 2013, the Company launched (i) exchange offers in respect of its 2013 Notes and the 2016 Notes, (ii) a solicitation of consents to amendments to the indenture governing the 2016 Notes, and (iii) a solicitation of votes on a pre-packaged Chapter 11 Plan of Reorganization relating to the 2013 Notes and the 2016 Notes. These transactions were launched by the Company to begin a process of consensual restructuring of the Company’s obligations with the participation of Roust Trading Limited (“RTL”), an entity controlled by Mr. Roustam Tariko, the 2016 Steering Committee and the 2013 Steering Committee, however none of RTL, the 2016 Steering Committee or the 2013 Steering Committee supported these transactions as launched by the Company. Following the launch of these transactions on February 25, 2013, these stakeholders continued to negotiate the terms of a mutually agreeable restructuring of the Company’s obligations.

On March 11, 2013, the Company announced amended terms to these exchange offers, consent and vote solicitations to reflect terms agreed to and supported by the Company, RTL and the 2016 Steering Committee (the “Plan of Reorganization”). Thereafter, on March 19, 2013, the Company announced the termination of its exchange offer in respect of the 2013 Notes and continued to solicit votes from the holders of the 2013 Notes on the Plan of Reorganization included in the amended terms. After extensive discussion with representatives of RTL, the 2016 Steering Committee and the 2013 Steering Committee and deliberation regarding the Company’s alternatives, the Board resolved unanimously to support the Plan of Reorganization.

Voting on the Plan of Reorganization closed on April 4, 2013. According to the official vote tabulation prepared by CEDC’s voting and information agent, impaired creditors voted overwhelmingly to accept the Plan of Reorganization. Specifically, approximately 95% of all 2013 Notes were voted. The Plan of Reorganization was accepted by 99.13% in number and 99.00% in amount of those 2013 Notes that were voted on the Plan of Reorganization. Approximately 95% of all 2016 Notes were voted, and of those, 97.26% in number and 97.34% in amount voted to accept the Plan of Reorganization.

On April 7, 2013, CEDC announced that the Debtors had received overwhelming support from creditors for the Plan of Reorganization and the CEDC Board of Directors resolved to implement the exchange offers through the prepackaged Plan of Reorganization. Accordingly, the Company filed the Chapter 11 Cases in the Bankruptcy Court in order to effectuate the Plan of Reorganization.

CEDC and CEDC Finance Corporation International, Inc. also announced the successful completion of the consent solicitation conducted with respect to the indenture governing the 2016 Notes, as the requisite consents were obtained to approve the amendments to covenants, collateral and guarantees and bankruptcy waiver. Approximately 95% of the 2016 Notes by principal amount voted to approve.

Finally, CEDC and CEDC Finance Corporation International, Inc. announced the termination of the exchange offer for the 2016 Notes. The exchange offer failed to meet the minimum tender condition necessary for the consummation of the offer.

On May 13, 2013, the Bankruptcy Court entered an order confirming the Plan. The Effective Date of the Plan was June 5, 2013.

Description of the Plan of Reorganization

The Plan of Reorganization included the following:

• RTL made a $172.0 million cash investment and exchanged the $50.0 million RTL Credit Facility for new shares of common stock of the Company, with the proceeds of $172.0 million used to fund the cash consideration in the exchange offer for 2016 Notes described below.

• all 2016 Notes of approximately $982.2 million, including interest, were exchanged for (i) the New Secured Notes equal to $450 million plus $35.0 million of the aggregate interest accrued but unpaid on the outstanding 2016 Notes not accepted for tender in the reverse “Dutch Auction” available to 2016 Notes in accordance with their existing terms in respect of the period from March 16, 2013 to the earlier of June 1, 2013 and the date preceding the date of issuance of the New Secured Notes, (ii) the New Convertible Secured Notes equal to $200.0 million and (iii) $172 million in cash.

• all 2013 Notes and the $20.0 million RTL Notes (the “RTL Notes”) were exchanged for their pro rata share (based upon the approximate $282.0 million sum of aggregate principal amount of 2013 Notes and the RTL Notes outstanding and accrued interest calculated through March 15, 2013) of $16.9 million in cash, which was also funded by RTL.

• In exchange for the RTL Investment and funding the cash distribution to 2013 Noteholders, RTL and its affiliates received new shares of common stock of the Company representing 100% of reorganized CEDC. All of the Company’s shares of common stock outstanding prior to the Effective Date of the Plan were cancelled.

In addition, RTL was making an offer (i) outside the United States in “offshore transactions” in compliance with Regulation S under the Securities Act; and (ii) to Accredited Investors to exchange, subject to certain conditions, 2013 Notes not held by RTL in exchange for cash and securities issued by RTL as follows: upon completion of the Proposed 2013 Notes Restructuring Transactions described in the Supplement for each $1,000 outstanding principal amount of 2013 Notes not owned by RTL who accepted the offer and voted in favor of the Plan of Reorganization included in the Supplement, RTL delivered a pro rata share (based upon the aggregate amount of principal of 2013 Notes not held by RTL, which was approximately $155.3 million as of March 13, 2013) of an aggregate of $25.0 million in cash and an aggregate principal amount of $30.0 million of secured notes issued by RTL on the terms described in the 2013 Notes Term Sheet. Each accepting holder assigned to RTL all of its rights under such 2013 Notes, including the right to its distribution under the Plan of Reorganization included in the amended terms.

Holders of 2013 Notes other than RTL who participate in the RTL Offer received an estimated recovery of 34.9%. Holders of 2013 Notes that did not participate in the RTL Offer received their proportionate share of $16.9 million in cash under the Plan of Reorganization (shared with the RTL Notes). Holders of 2013 Notes that participated in the RTL Offer did not receive a distribution from CEDC or its U.S. subsidiaries under the Plan of Reorganization.

The Plan of Reorganization enabled the Company to restructure its debt as described above. Furthermore, the Bilateral Facility Agreement of up to $100 million entered into on April 8, 2013 with an affiliate of the Alfa Group, cash on hand, cash from operations and pending successful renewal of available credit and factoring facilities will be sufficient to fund the Company’s anticipated cash requirements for working capital purposes and normal capital expenditures, for at least the next twelve months.

Basis of presentation

Basis of Presentation

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The Company consolidates all entities in which it has a controlling interest. All inter-company accounts and transactions have been eliminated in the consolidated financial statements.

CEDC’s subsidiaries maintain their books of account and prepare their statutory financial statements in their respective local currencies. The subsidiaries’ financial statements have been adjusted to reflect US GAAP.

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Foreign Currency Translation and Transactions

Foreign Currency Translation and Transactions

For all of the Company’s subsidiaries the functional currency is the local currency. Assets and liabilities of these operations are translated to the reporting currency at the exchange rate in effect at each year-end. The Statements of Operations are translated at the average rate of exchange prevailing during the respective year. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of comprehensive income. Transaction adjustments arising from operations as well as gains and losses from any specific foreign currency transactions are included in the reported net income/(loss) for the period.

The accompanying consolidated financial statements have been presented in U.S. dollars.

Fair Value Measurements

Fair value measurements

The Company measures certain assets and liabilities at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a fair value hierarchy, which gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs used to measure fair value are:

Level 1	—	Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2	—	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	—	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value of substantially all of the Company’s assets is based on observable inputs, including readily available quoted market prices, which meet the definition of a Level 1 or Level 2 input.

Cash and Cash Equivalents

Cash and Cash Equivalents

Short-term investments which have a maturity of three months or less from the date of purchase are classified as cash equivalents.

Accounts Receivable

Accounts Receivable

Accounts receivables are recorded based on the invoice price, inclusive of VAT (sales tax), and where a delivery note has been signed by the customer and returned to the Company. The allowances for doubtful accounts are based on our experience with past due accounts, collectability, history of write-offs, aging of accounts receivable, our analysis of customer data and our relationships with and the economic status of our customers. Individual trade receivables are provided against when management deems them not to be fully collectable. The Company typically does not provide for past due amounts due from large international retail chains (hypermarkets and supermarkets) as there have historically not been any issues with collectability of these amounts. When a trade account receivable is deemed uncollectible, the balance is charged off against the allowance for doubtful accounts.

Inventories

Inventories

Inventories are stated at the lower of cost or market value. Cost is determined using the average cost method or first-in, first-out (FIFO).

Cost includes customs duty (where applicable), and all costs associated with bringing the inventory to a condition for sale. These costs include importation, handling, storage and transportation costs, and exclude rebates received from suppliers, which are reflected as reductions to closing inventory. Inventories are comprised primarily of beer, wine, spirits, packaging materials and non-alcoholic beverages.

Goodwill

Goodwill

Goodwill and certain intangible assets having indefinite lives are not subject to amortization. Their book values are tested annually for impairment, or earlier upon the occurrence of certain events or substantive changes in circumstances that indicate goodwill is more likely than not impaired, which could result from significant adverse changes in the business climate and declines in the value of our business. Such indicators may include a sustained decline in our stock price; a decline in our expected future cash flows; adverse change in the economic or business environment; the testing for recoverability of a significant asset group, among others. Fair value measurement techniques, such as the discounted cash flow methodology, are utilized to assess potential impairments. The testing of goodwill is performed at each reporting unit level. The Company performs a two-step test to compare the carrying amount of an asset to its fair value. If the first step does not indicate that the carrying values of the reporting unit exceeds its fair values, the second step is not required. When the first step indicates potential impairment, the Company completes the second step of the impairment test and compares the implied fair value of the reporting units’ goodwill to the corresponding carrying value of goodwill. See Note 9 for further details.

Intangible Assets Other Than Goodwill

Intangible assets other than goodwill

Intangible assets with an indefinite life are not amortized but are reviewed at least annually for impairment or more frequently, if facts and circumstances indicate such need. Intangible assets consist primarily of acquired trademarks. The Company has acquired trademark rights to various brands, which were capitalized as part of the purchase price allocation process in connection with acquisitions of Bols, Polmos Bialystok, Parliament and Russian Alcohol Group (“RAG”). These trademarks include Soplica, Żubrówka, Absolwent, Royal, Parliament, Green Mark, Zhuravli, Kauffman Vodka, Urozhay and the trademark rights to Bols Vodka in Poland, Hungary and Russia. Management considers trademarks associated with high or market-leader brand recognition within their market segments to be indefinite-lived assets, based on the length of time they have existed, the comparatively high volumes sold and their general market positions relative to other products in their respective market segments.

Based on this and together with the evidence provided by analyses of vodka products life cycles, market studies, competitive and environmental trends, we believe that these trademarks will continue to generate cash flows for an indefinite period of time, and that the useful lives of these trademarks are therefore indefinite.

In order to support value of trademarks the Company calculates the fair value of trademarks using a discounted cash flow approach based on five year forecast discounted to present value. See Note 8 for further details.

Additional intangible assets include the valuation of customer contracts arising as a result of acquisitions, these intangible assets are amortized over their estimated useful life.

Property, Plant And Equipment

Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed by the straight-line method over the following useful lives:

Type	Depreciation life in years
Transportation equipment including capital leases	5
Production equipment	10-30
Software	5
Computers and IT equipment	3
Other equipment	2-10
Freehold land	Not depreciated
Freehold buildings	40

Leased equipment meeting appropriate criteria is capitalized and the present value of the related lease payments is recorded as a liability. Amortization of capitalized leased assets is computed on a straight-line method over the useful life of the relevant assets.

The Company expenses de minimis amounts up to $1,500 per fixed asset additions as incurred.

The Company periodically reviews its investment in property, plant and equipment and when indicators of impairment exist, an impairment loss is recognized. No impairments in property, plant and equipment have been recognized in the accompanying financial statements.

Impairment Of Long Lived Assets

Impairment of long lived assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows the asset is deemed to be impaired. An impairment charge is recognized for the amount by which the carrying amount of an asset exceeds its estimated fair value.

Equity Investments

Equity investments

If the Company is not required to consolidate its investment in another company, the Company uses the equity method if the Company can exercise significant influence over the other company. Under the equity method, investments are carried at cost, plus or minus the Company’s equity in the increases and decreases in the investee’s net assets after the date of acquisition and certain other adjustments. The Company’s share of the net income or loss of the investee is included in equity in earnings of equity method investees in the Company’s Consolidated Statements of Operations.

Revenue Recognition

Revenue Recognition

Revenues of the Company include sales of its own produced spirit brands, imported wine, beer and spirit brands as well as other third party alcoholic products purchased locally, the sale of each of these revenues streams are all processed and accounted for in the same manner. For all of its sources of revenue, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery of product has occurred, the sales price charged is fixed or determinable and collectability is reasonably assured. This generally means that revenue is recognized when title to the products are transferred to our customers. In particular, title usually transfers upon shipment to or receipt at our customers’ locations, as determined by the specific sales terms of the transactions.

Sales are stated net of sales tax (VAT) and reflect reductions attributable to consideration given to customers in various customer incentive programs, including pricing discounts on single transactions, volume discounts, promotional listing fees and advertising allowances, cash discounts and rebates. Net sales revenue is presented net of excise tax.

Revenue Dilution

Revenue Dilution

As part of normal business terms with customers, the Company provides for additional discounts and rebates off our standard list price for all of the products we sell. These revenue reductions are typically associated with annual or quarterly purchasing levels as well as payment terms. These rebates are divided into on-invoice and off-invoice discounts. The on-invoice reductions are presented on the sales invoice and deducted from the invoice gross sales value. The off-invoice reductions are calculated based on the analysis performed by management and are provided for in the same period the related sales are recorded. Discounts or fees that are subject to contractual based term arrangements are amortized over the term of the contract. For the years ended December 31, 2012, 2011 and 2010, the Company recognized $112.1 million, $149.9 million and $184.2 million of off invoice rebates as a reduction to net sales, respectively.

Certain sales contain customer acceptance provisions that grant a right of return on the basis of either subjective criteria or specified objective criteria. Where appropriate a provision is made for product return, based upon a combination of historical data as well as depletion information received from our larger clients. The Company’s policy is to closely monitor inventory levels with key distribution customers to ensure that we do not create excess stock levels in the market which would result in a return of sales in the future. Historically sales returns from customers has averaged less than 1% of our net sales revenue.

Shipping and Handling

Shipping and Handling

Costs related to shipping and handling are classified within selling, general and administrative expenses for all periods presented.

Non-direct advertising costs

Non-direct advertising costs

Non-direct-response advertising costs are expensed as incurred.

Income Taxes and Deferred Taxes

Income Taxes and Deferred Taxes

The provision for income taxes is determined using the liability method. Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial reporting basis and the tax basis of existing assets and liabilities. The tax rate used to determine the deferred tax assets and liabilities is the enacted tax rate for the year and manner in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Provision is made currently for taxes payable on remittances of overseas earnings; no provision is made for taxes on overseas retained earnings that are deemed to be permanently reinvested.

The Company uses a comprehensive model to recognize, measure, present and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on an income tax return. The Company recognizes interest expense and penalties related to unrecognized tax benefits within income tax expense.

Legal Contingencies

Legal Contingencies

We are involved in various lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. We record a provision for a liability when we believe that it is both probable that a liability has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and updated information. Litigation is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows. See Note 16 to the Consolidated Financial Statements for a further discussion of litigation and contingencies.

Employee Retirement Provisions

Employee Retirement Provisions

The Company’s employees are entitled to retirement payments and in some cases payments for long-service (“jubilee awards”) and accordingly the Company provides for the current value of the liability related to these benefits. A provision is calculated based on the terms set in the collective labor agreement. The amount of the provision for retirement bonuses depends on the age of employees and the pre-retirement time of work for the Company and typically equals one month salary.

The Company does not create a specific fund designated for these payments and all payments related to the benefits are charged to the accrued liability. The provision for the employees’ benefits is calculated annually using the projected unit method and any losses or gains resulting from the valuation are immediately recognized in the Consolidated Statement of Operations.

The Company also contributes to public and privately managed defined contribution plans. Contributions to defined contribution plans are charged to the Consolidated Statement of Operations in the period in which they are incurred.

Employee Stock-Based Compensation

Employee Stock-Based Compensation

The Company recognizes stock-based compensation costs for its share-based options, measured at the fair value of each award at the time of grant, as an expense over the vesting period of the instrument. Determining the fair value of share-based awards at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility and the expected dividends. Judgment is also required in estimating the amount of share-based awards expected to be forfeited prior to vesting. If actual forfeitures differ significantly from these estimates, share-based compensation expense could be materially impacted.

Comprehensive Income/(Loss)

Comprehensive Income/(Loss)

Comprehensive income/(loss) is defined as all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income/(loss) includes net income/(loss) adjusted by, among other items, foreign currency translation adjustments. The translation gains/(losses) on the translation from foreign currencies (primarily the Polish zloty and Russian ruble) to U.S. dollars are classified separately as a component of accumulated other comprehensive income included in stockholders’ equity.

As of December 31, 2012, the Polish zloty and Russian ruble exchange rates used to translate the balance sheet strengthened compared to the exchange rate as of December 31, 2011, and as a result a loss to comprehensive income was recognized.

Segment Reporting

Segment Reporting

The Company primarily operates in one industry segment, the production and sale of alcoholic beverages. The Company operates on several geographic areas, namely Russia, Poland, Hungary and USA, so the Company has implemented a segmental approach to the business based upon geographic locations.

Net Income/(Loss) Per Common Share

Net Income/(loss) per Common Share

Net income per common share is calculated in accordance with ASC Topic 260 “Earnings per Share.” Basic earnings/(loss) per share (EPS) are computed by dividing income/(loss) available to common shareholders by the weighted-average number of common shares outstanding for the year. The stock options and warrants discussed in Note 17 were included in the computation of diluted earnings/(losses) per common share in Note 23.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In March 2013, the FASB issued two Accounting Standards Updates (ASUs) on EITF consensuses it ratified at its 31 January 2013 meeting. ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date, requires a reporting entity that is jointly and severally liable to measure the obligation as the sum of the amount the entity has agreed with co-obligors to pay and any additional amount it expects to pay on behalf of a co-obligor. ASU 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity, specifies that a cumulative translation adjustment (CTA) should be released into earnings when an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete liquidation of the foreign entity. For sales of an equity method investment that is a foreign entity, a pro rata portion of CTA attributable to the investment would be recognized in earnings upon sale of the investment. When an entity sells either a part or all of its investment in a consolidated foreign entity, CTA would be recognized in earnings only if the sale results in the parent no longer having a controlling financial interest in the foreign entity. CTA would be recognized in earnings in a business combination achieved in stages (i.e., a step acquisition). The both ASU will be effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The Company will analyze and implement requirements of ASU 2013-04 and 2013-05 for the first quarter of 2014.

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income to improve the reporting of reclassifications out of AOCI. The ASU sets requirements for presentation for significant items reclassified to net income in their entirety during the period and for items not reclassified to net income in their entirety during the period (e.g., pension amounts that are capitalized in inventory). It requires companies to present information about reclassifications out of AOCI in one place because the FASB believes it’s important for users of the financial statements to have a road map about the effect of reclassifications on the financial statements. It also requires companies to present reclassifications by component when reporting changes in AOCI balances. The new guidance does not change the requirement to present for annual periods items of net income and other comprehensive income, and totals for net income, OCI and comprehensive income in a single continuous statement or two consecutive statements. It also does not change the requirement to report a total for comprehensive income in a single continuous statement or two consecutive statements in interim periods. Public companies must make the disclosures prospectively in fiscal years and interim periods within those years beginning after December 15, 2012. The Company will analyze and implement requirements of ASU 2013-02 for the first quarter of 2013.

In October 2012, the FASB issued ASU 2012-04, Technical Corrections and Improvements. The ASU makes certain technical corrections and clarifications and improvements to the Codification. Additionally, the ASU includes amendments that identify when the use of fair value should be linked to the definition of fair value in Topic 820. ASU 2012-04 is effective for fiscal periods beginning after December 15, 2012. The Company will analyze and implement requirements of ASU 2012-04 for the first quarter of 2013.

In December 2011, the FASB issued ASU 2011-11—Disclosures about Offsetting Assets and Liabilities (ASC 210). It requires new disclosures for recognized financial instruments and derivative instruments that are either: (1) offset on the balance sheet in accordance with the offsetting guidance in ASC 210-20-45 or ASC 815-10-45 (collectively, the offsetting guidance) or (2) subject to an enforceable master netting arrangement or similar agreement, regardless of whether they are offset in accordance with the offsetting guidance. Recognized assets and liabilities within the scope of the ASU include financial instruments such as derivatives, repurchase agreements, reverse repurchase agreements and securities lending and borrowing arrangements subject to master netting arrangements. Financial instruments outside the scope of the ASU include loans and customer deposits at the same institution (unless they are offset in the statement of financial position) and financial instruments that are subject only to a collateral agreement (e.g., collateralized loans). Furthermore, in January 2013 the FASB issued ASU 2013-01 that clarifies provisions of ASU 2011-11. The Update clarifies that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. Both, ASU 2011-11 and ASU 2013-01 are effective for interim and annual reporting periods beginning after January 1,2013. The Company does not expect the adoption to have a material impact on its results of operations, financial condition or disclosures.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”), which was issued to enhance comparability between entities that report under U.S. GAAP and IFRS, and to provide a more consistent method of presenting non-owner transactions that affect an entity’s equity. ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. However, in December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”), which deferred the guidance on whether to require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements. ASU 2011-12 reinstated the requirements for the presentation of reclassifications that were in place prior to the issuance of ASU 2011-05 and did not change the effective date for ASU 2011-05. For public entities, the amendments in ASU 2011-05 and ASU 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively. The Company adopted both ASU 2011-05 and ASU 2011-12 during the first quarter of the current fiscal year. The adoption of ASU 2011-05 and ASU 2011-12 did not have a material impact on the Company’s consolidated financial statements, other than presentation of comprehensive income.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”), which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. The Company adopted ASU 2011-04 during the first quarter of the current fiscal year. The adoption of ASU 2011-04 did not have a material impact on the Company’s consolidated financial statements other than disclosures related to fair value measurements.

In April 2011, the FASB issued ASU 2011-03 Transfers and Servicing (Topic 860), Reconsideration of Effective Control for Repurchase Agreements. It changes the rules for determining when these transactions should be accounted for as financings. The new rules eliminate from the assessment of effective control the requirement that the transferor has the ability to repurchase or redeem the financial asset that was transferred. Under the new rules, the amount of cash collateral received by the transferor will be irrelevant when determining if the repo should be accounted for as a sale. ASU 2011-03 is effective for annual reporting periods beginning after December 15, 2011. The Company adopted ASU 2011-03 during the current fiscal year. The adoption of ASU 2011-03 did not have a material impact on the Company’s consolidated financial statements.