Exhibit 99.3
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to consolidated financial statements: | ||
Report of Independent Registered Public Accounting Firm | F-1 | |
Consolidated Balance Sheets at December 31, 2004 and 2003 | F-2 | |
Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002 | F-3 | |
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2004, 2003 and 2002 | F-4 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 | F-5 | |
Notes to Consolidated Financial Statements | F-6 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of Central European Distribution Corporation
We have audited the accompanying consolidated balance sheets of Botapol Holding B.V. and its subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Botapol Holding B.V. and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.
PricewaterhouseCoopers Sp. z o.o.
September 23, 2005.
F-1
BOTAPOL HOLDING B.V.
CONSOLIDATED BALANCE SHEETS
Amounts in columns expressed in thousands of U.S. dollars
December 31, | ||||||||
2004 | 2003 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash & cash equivalents | $ | 7,598 | $ | 5,763 | ||||
Trade accounts receivable, net (including related party receivables of $2,223 in 2004 and $1,157 in 2003) | 3 | 65,291 | 55,957 | |||||
Inventories | 4 | 12,624 | 8,715 | |||||
Prepaid expenses and other receivables | 5 | 4,231 | 4,069 | |||||
Deferred income taxes | 6 | 1,580 | 1,186 | |||||
TOTAL CURRENT ASSETS | 91,324 | 75,690 | ||||||
Intangible assets, net | 7 | 11,859 | 901 | |||||
Tangible fixed assets, net | 8 | 12,019 | 8,604 | |||||
Other assets | 4 | 4 | ||||||
TOTAL ASSETS | $ | 115,206 | $ | 85,199 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Trade accounts payable, net (including related party payables of $6,655 in 2004 and $916 in 2003) | $ | 17,355 | $ | 8,625 | ||||
Short term loans and overdraft facilities (including related party loan of $5,483 in 2004) | 9 | 17,024 | 19,658 | |||||
Current portion of obligations under capital leases | 10 | 1,301 | 667 | |||||
Taxes payable | 34,157 | 26,679 | ||||||
Other accrued liabilities | 11 | 19,853 | 13,875 | |||||
TOTAL CURRENT LIABILITIES | 89,690 | 69,504 | ||||||
Long-term obligations under capital leases | 10 | 844 | 907 | |||||
STOCKHOLDERS’ EQUITY | ||||||||
Common Stock (4,000 shares authorized and issued, EUR 1,000 par value) | 3,616 | 3,616 | ||||||
Additional paid in capital | 4,312 | 4,312 | ||||||
Retained earnings | 7,666 | 4,916 | ||||||
Accumulated other comprehensive income | 9,078 | 1,944 | ||||||
STOCKHOLDERS’ EQUITY | 24,672 | 14,788 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 115,206 | $ | 85,199 | ||||
See accompanying notes.
F-2
BOTAPOL HOLDING B.V.
CONSOLIDATED STATEMENTS OF INCOME
Amounts in columns expressed in thousands of U.S. dollars
Year ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Sales | $ | 219,031 | $ | 211,252 | $ | 206,081 | ||||||
Less –Excise taxes | (126,173 | ) | (125,335 | ) | (141,763 | ) | ||||||
Net Sales | 92,858 | 85,917 | 64,318 | |||||||||
Cost of goods sold | (39,382 | ) | (42,758 | ) | (26,064 | ) | ||||||
Gross profit | 53,476 | 43,159 | 38,254 | |||||||||
Selling, general and administrative expenses | (32,009 | ) | (31,968 | ) | (30,184 | ) | ||||||
Provision for doubtful accounts and notes | (1,646 | ) | (1,359 | ) | (1,321 | ) | ||||||
Operating income | 19,821 | 9,832 | 6,749 | |||||||||
Non-operating income / (expense) | ||||||||||||
Interest expense | (895 | ) | (1,887 | ) | (2,838 | ) | ||||||
Interest income | 58 | — | 311 | |||||||||
Realized and unrealized foreign currency transaction gain/(losses), net | 111 | (675 | ) | — | ||||||||
Other expense, net | (1,225 | ) | (1,979 | ) | (724 | ) | ||||||
Income before income taxes | 17,870 | 5,291 | 3,498 | |||||||||
Income tax expense | (3,751 | ) | (4,403 | ) | (1,353 | ) | ||||||
Net income | $ | 14,119 | $ | 888 | $ | 2,145 | ||||||
See accompanying notes.
F-3
BOTAPOL HOLDING B.V.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Amounts in columns expressed in thousands of U.S. dollars
Common Stock Issued | Additional Paid-in- Capital | Retained Earnings | Accumulated other comprehensive loss | Total | |||||||||||||||
No. of Shares | Amount | ||||||||||||||||||
Balance at December 31, 2001 | 4,000 | $ | 3,616 | $ | 4,312 | $ | 1,883 | $ | — | $ | 9,811 | ||||||||
Net income for 2002 | 2,145 | 2,145 | |||||||||||||||||
Foreign currency translation adjustment | 1,512 | 1,512 | |||||||||||||||||
Comprehensive income for 2002 | 3,657 | ||||||||||||||||||
Balance at December 31, 2002 | |||||||||||||||||||
4,000 | $ | 3,616 | $ | 4,312 | $ | 4,028 | $ | 1,512 | $ | 13,468 | |||||||||
Net income for 2003 | 888 | 888 | |||||||||||||||||
Foreign currency translation adjustment | 432 | 432 | |||||||||||||||||
Comprehensive income for 2003 | 1,320 | ||||||||||||||||||
Balance at December 31, 2003 | |||||||||||||||||||
4,000 | $ | 3,616 | $ | 4,312 | $ | 4,916 | $ | 1,944 | $ | 14,788 | |||||||||
Net income for 2004 | 14,119 | 14,119 | |||||||||||||||||
Foreign currency translation adjustment | 7,134 | 7,134 | |||||||||||||||||
Comprehensive income for 2004 | 21,253 | ||||||||||||||||||
Dividend payment | (11,369 | ) | — | (11,369 | ) | ||||||||||||||
Balance at December 31, 2004 | 4,000 | $ | 3,616 | $ | 4,312 | $ | 7,666 | $ | 9,078 | $ | 24,672 | ||||||||
See accompanying notes.
F-4
BOTAPOL HOLDING B.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in columns expressed in thousands of U.S. dollars
Year ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Operating Activities | ||||||||||||
Net income | $ | 14,119 | $ | 888 | $ | 2,145 | ||||||
Adjustments to reconcile net income to net cash provided by / (used in) operating activities: | ||||||||||||
Depreciation and amortization | 2,161 | 1,799 | 1,771 | |||||||||
Interest | 836 | 1,887 | 2,526 | |||||||||
Profit on investing activities | (468 | ) | (238 | ) | — | |||||||
Other | (385 | ) | (553 | ) | — | |||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | 5,505 | 3,899 | (12,358 | ) | ||||||||
Inventories | (1,724 | ) | (734 | ) | (1,888 | ) | ||||||
Prepayments and other current assets | 858 | 6,777 | (2,392 | ) | ||||||||
Trade accounts payable | 6,557 | (2,112 | ) | 1,552 | ||||||||
Income and other taxes | 607 | 938 | (2,702 | ) | ||||||||
Other accrued liabilities and other | 2,886 | 8,556 | 3,782 | |||||||||
Net cash (used in)/provided by operating activities | 30,952 | 21,107 | (7,564 | ) | ||||||||
Investing Activities | ||||||||||||
Purchases of equipment and intangible assets | (2,026 | ) | (3,884 | ) | (1,515 | ) | ||||||
Acquisition of subsidiaries | (9,509 | ) | — | — | ||||||||
Proceeds from the disposal of equipment and financial assets | 699 | 1,224 | 1,085 | |||||||||
Net cash used in investing activities | (10,836 | ) | (2,660 | ) | (430 | ) | ||||||
Financing Activities | ||||||||||||
Borrowings on short term loans and overdraft facility | 5,483 | 6,279 | 13,882 | |||||||||
Repayment of short term loans and overdraft facility | (13,048 | ) | (16,678 | ) | (2,957 | ) | ||||||
Interest paid | (551 | ) | (1,878 | ) | (2,526 | ) | ||||||
Dividend paid | (11,369 | ) | — | — | ||||||||
Payment of capital leases | (1,737 | ) | (1,128 | ) | (793 | ) | ||||||
Net cash (used in)/provided by financing activities | (21,222 | ) | (13,405 | ) | 7,606 | |||||||
Currency effect on cash balances | 2,941 | 204 | 738 | |||||||||
Net increase in cash | 1,835 | 5,246 | 350 | |||||||||
Cash and cash equivalents at beginning of period | 5,763 | 517 | 167 | |||||||||
Cash and cash equivalents at end of period | $ | 7,598 | $ | 5,763 | $ | 517 | ||||||
Supplemental disclosures of cash flow information | ||||||||||||
Interest paid | $ | 551 | $ | 1,878 | $ | 2,526 | ||||||
Income tax paid | $ | 3,799 | $ | 2,799 | $ | 1,550 |
See accompanying notes.
F-5
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
1. Organization and Description of Business
Botapol Holding B.V (“Botapol”) is a holding company with no operations which has two wholly owned subsidiaries, Bols Sp. z o.o (“Bols”) and Hillcroft Limited Sp. z o.o. (“Hillcroft”). The holding company is a Dutch company. The operating subsidiaries are Polish companies dealing with the distillation and sale of locally produced vodka and the importation and distribution of vodka and other spirits and wines. Hillcroft is the owner of the Soplica and Czysta Slaska trademarks. Other than owning these trademarks, Hillcroft has no operations. Hillcroft licenses these trademarks to Bols in consideration of royalty payments. Bols has one subsidiary, WTK Soplica Sp. z o.o. ( “WTK Soplica”). Bols is one of the largest producers of vodka in Poland producing leading vodka brands such asBols Vodka andSoplica.
The Company through its subsidiaries derives all its revenues in Poland.
2. Significant Accounting Policies
The significant accounting policies and practices followed by the Company are as follows:
Basis of Presentation
The Consolidated Financial Statements include the accounts of Botapol and all its wholly and majority-owned subsidiaries and fully controlled subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidation.
Botapol’s subsidiaries maintain their books of account and prepare their statutory financial statements in Polish zloty (PLN) in accordance with Polish statutory requirements and the Accounting Act of September 29, 1994. The subsidiaries’ financial statements have been adjusted to reflect accounting principles generally accepted in the United States of America (U.S. GAAP).
The consolidated financial statements are prepared under U.S. GAAP and have been presented in U.S. dollars.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates and such differences may be material to the consolidated financial statements.
Foreign Currency Translation and Transactions
The functional currency for the Company and its subsidiaries is the Polish zloty (PLN). For the preparation of these financial statements in the US Dollar reporting currency, assets and liabilities has been translated at the exchange rate in effect at each year-end. The Income Statements 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 stockholders’ equity. Transaction adjustments arising from operations as well as gains and losses from any specific foreign currency transactions are included in the reported net income for the period.
The exchange rates used on Polish zloty denominated transactions and balances for translation purposes as of December 31, 2004 and 2003 for one U.S. Dollar were 2.99 PLN and 3.74 PLN, respectively. As of September 23, 2005 the Polish Zloty to U.S. Dollar conversion rate was 3.22 PLN.
F-6
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
Segment Reporting
The Company operates mainly in one industry segment, production and sales of alcoholic beverages. These activities are conducted by the Company’s subsidiaries in Poland. Substantially all revenues, operating profits and assets relate to this business.
Cash and cash equivalents.
Cash and equivalents consist of deposits with banks and financial institutions which are unrestricted as to withdrawal or use, and which have original maturities of three months or less.
Accounts Receivable
Accounts receivable are recorded based on the invoice price, inclusive of VAT (sales tax). The allowances for doubtful accounts are based upon the aging of the accounts receivable. The Company makes an allowance based on a sliding scale which culminates in a 100% provision should the receivable be over one year old. However, where circumstances require, the Company will also make specific provisions for any excess not provided for under the general provision. When a final determination is delivered to the Company regarding the non-recovery of a receivable, the Company then charges the unrecoverable amount to the accumulated allowance.
Property, Plant and Equipment and Intangibles
Tangible and intangible fixed assets are stated at cost, less accumulated depreciation. Depreciation of tangible fixed assets is computed by the straight-line method over the following useful lives:
Type | Estimated useful life in years | |
Transportation equipment under capital leases | 5 | |
Transportation equipment not under capital lease | 5 | |
Software | 2.5 | |
Computers and IT equipment | 3 | |
Production machinery and equipment | 3-10 | |
Freehold land | Not depreciated | |
Freehold buildings | 40 |
The Company periodically review its investment in intangible and fixed assets and when indicators of impairment exist and if the value of the assets is impaired, an impairment loss is recognized.
Inventories
Inventories are stated at the lower of weighted average cost or market value. Cost includes direct materials, direct costs, indirect variable costs and allocation of fixed production overheads that are based on the normal capacity of the production capacity of the production facilities. 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.
Employee Retirement Provisions
Under Polish Labor Laws, the Company is required to provide each employee reaching their 60th (for women) or 65th (for men) birthday while employed by the Company with a bonus of one month’s salary. The Company expenses these amounts when incurred as they do not represent a material amount in aggregate. Retirements benefits in Poland are generally paid by the State and are financed by taxes paid by employees currently.
F-7
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
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 includes net income adjusted by, among other items, foreign currency translation adjustments. The foreign exchange gains/(losses) on the translation of the financial statements from PLN to U.S. dollars are classified separately as a component of stockholders’ equity and are the only additional component of accumulated other comprehensive income included therein..
Revenue Recognition
Revenue derived from beverage distribution is recognized when goods are delivered to customers. Net sales are stated net of customer discounts, an estimate of customer returns, sales tax (VAT) and excise tax.
Income Taxes and Deferred Taxes
The Company computes and records income taxes in accordance with the liability method. Deferred tax assets and liabilities are recorded based on the difference between the accounting and tax basis of the underlying assets and liabilities based on enacted tax rates expected to be in effect for the year in which the differences are expected to reverse.
3. Trade Accounts Receivable and Allowances for Doubtful Accounts
Changes in the allowance for doubtful accounts during each of the three years in the period ended December 31, 2004 were as follows:
December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Trade accounts receivable, gross | $ | 67,741 | $ | 57,167 | $ | 60,130 | ||||||
Allowances for Doubtful Debts | ||||||||||||
Balance, beginning of year | $ | 1,210 | $ | 1,825 | $ | 1,206 | ||||||
Effect of FX movement on opening balance | 303 | 49 | 46 | |||||||||
Provision for bad debts – reported in income statement | 1,646 | 1,359 | 1,321 | |||||||||
Utilization of allowances for Doubtful Debts | (709 | ) | (2,023 | ) | (748 | ) | ||||||
Balance, end of year | $ | 2,450 | $ | 1,210 | $ | 1,825 | ||||||
Trade accounts receivable, net | $ | 65,291 | $ | 55,957 | $ | 58,305 | ||||||
F-8
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
4. Inventories
Total inventories comprise:
December 31, | ||||||
2004 | 2003 | |||||
Raw Materials and supplies | $ | 3,809 | $ | 3,855 | ||
Finished Goods | 8,815 | 4,860 | ||||
Total | $ | 12,624 | $ | 8,715 | ||
5. Prepaid expenses and other receivables
Prepaid expenses and other receivables comprise:
December 31, | ||||||
2004 | 2003 | |||||
Prepaid expenses | $ | 2,841 | $ | 1,961 | ||
Tax receivables | 1,098 | 1,482 | ||||
Other receivables | 292 | 626 | ||||
Total | $ | 4,231 | $ | 4,069 | ||
6. Income and Deferred Taxes
The Company operates in two tax jurisdictions, the Netherlands and Poland. All Polish subsidiaries file their own separate corporate tax returns and account for their own deferred tax balances.
Total income tax expense varies from the expected income tax expense computed at Polish statutory rates (28% in 2002, 27% in 2003 and 19% in 2004) as follows:
2004 | 2003 | 2002 | ||||||||||
Tax at statutory rate | $ | 3,395 | $ | 1,429 | $ | 979 | ||||||
Effect of changes in tax rates on net deferred tax assets | — | 480 | 71 | |||||||||
Permanent differences | 356 | 2,801 | 303 | |||||||||
Utilization of previous years WTK Soplica tax losses | — | (686 | ) | — | ||||||||
Previous years income tax adjustment | — | 379 | — | |||||||||
Income tax expense | $ | 3,751 | $ | 4,403 | $ | 1,353 | ||||||
including: | ||||||||||||
Current income tax | 3,830 | 3,178 | 1,830 | |||||||||
Movement in deferred tax | (79 | ) | 1,225 | (477 | ) |
F-9
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
Significant components of the Company’s deferred tax assets are as follows:
December 31, | ||||||
2004 | 2003 | |||||
Deferred tax assets: | ||||||
Allowance for doubtful accounts receivable | $ | 776 | $ | 401 | ||
Unrealized foreign exchange losses/(gains), net | 12 | 15 | ||||
Accrued expenses, deferred income and prepayments, net | 1,242 | 1,018 | ||||
Deferred tax asset | $ | 2,030 | $ | 1,434 | ||
Deferred tax liability | ||||||
Deferred income | 263 | 168 | ||||
Timing differences for finance type leases | 187 | 80 | ||||
Deferred tax liability | $ | 450 | $ | 248 | ||
Total deferred tax asset | 2,030 | 1,434 | ||||
Total deferred tax liability | 450 | 248 | ||||
Total net deferred tax asset | $ | 1,580 | $ | 1,186 | ||
Classified as: | ||||||
Current deferred tax asset | $ | 1,580 | $ | 1,186 | ||
In December 2003, legislation was enacted which reduced the corporate income tax rates in Poland effective January 1, 2004. The enacted tax rate of 27% was reduced to 19%. This impacted the value of the brought forward deferred tax assets by approximately $480,000.
The 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 are susceptible to varying interpretations, amounts reported in the consolidated financial statements could be changed at a later date upon final determination by the tax authorities.
F-10
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
7. Intangible Assets
Intangible assets presented on the year end balance sheet represent the trade marks ofSoplica, Czysta Slaska and other and software (mainly SAP R3 implemented in 2002).
Soplica Trade Mark | Boss Trade Mark | Software | Other | Total | ||||||
Acquisition Cost | ||||||||||
Balance as at December 31, 2002 | — | 294 | 1,942 | 210 | 2,446 | |||||
Effects of foreign exchange movement | — | 8 | 51 | 6 | 65 | |||||
Additions | — | — | 60 | 113 | 173 | |||||
Balance as at December 31, 2003 | — | 302 | 2,053 | 329 | 2,684 | |||||
Effects of foreign exchange movement | — | 76 | 515 | 82 | 673 | |||||
Additions | 11,169 | — | 399 | 19 | 11,587 | |||||
Balance as at December 31, 2004 | 11,169 | 378 | 2,967 | 430 | 14,944 | |||||
Cumulative Depreciation | ||||||||||
Balance as at December 31, 2002 | — | 59 | 1,017 | 7 | 1,083 | |||||
Effects of foreign exchange movement | — | 2 | 27 | 0 | 29 | |||||
Depreciation charge | — | 60 | 494 | 117 | 671 | |||||
Balance as at December 31, 2003 | — | 121 | 1,538 | 124 | 1,783 | |||||
Effects of foreign exchange movement | — | 30 | 386 | 31 | 447 | |||||
Depreciation charge | — | 76 | 627 | 152 | 855 | |||||
Balance as at December 31, 2004 | — | 227 | 2,551 | 307 | 3,085 | |||||
Net book value December 31, 2002 | — | 235 | 925 | 203 | 1,363 | |||||
Net book value December 31, 2003 | — | 181 | 515 | 205 | 901 | |||||
Net book value December 31, 2004 | 11,169 | 151 | 416 | 123 | 11,859 |
The addition of $ 9.9 million results from the acquisition of Hillcroft Ltd., the owner of theSoplica trade mark. See the note 15.
Estimated aggregate future amortization expense for intangible assets is as follows:
2005 | $ | 288 | |
2006 | 276 | ||
2007 | 95 | ||
2008 | 4 | ||
2009 | 2 | ||
Total | $ | 665 | |
F-11
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
8. Property, Plant and Equipment
Equipment, presented net of accumulated depreciation in the consolidated balance sheets, consists of:
Land & Buildings | Machinery and Equipment | Transportation under capital lease | Other | WIP | Total | ||||||||||||
Acquisition Cost | |||||||||||||||||
Balance as at December 31, 2002 | 2,579 | 3,460 | 2,654 | 397 | 257 | 9,347 | |||||||||||
Effects of foreign exchange movement | 69 | 92 | 71 | 11 | 6 | 249 | |||||||||||
Additions | 1,074 | 2,564 | 1,566 | 119 | — | 5,323 | |||||||||||
Disposals/Transfers | — | (60 | ) | (1,686 | ) | — | (238 | ) | (1,984 | ) | |||||||
Balance as at December 31, 2003 | 3,722 | 6,056 | 2,605 | 527 | 25 | 12,935 | |||||||||||
Effects of foreign exchange movement | 934 | 1,519 | 653 | 132 | 6 | 3,244 | |||||||||||
Additions | 58 | 741 | 1,916 | 238 | 561 | 3,514 | |||||||||||
Disposals/Transfers | — | (42 | ) | (1,056 | ) | (12 | ) | — | (1,110 | ) | |||||||
Balance as at December 31, 2004 | 4,714 | 8,274 | 4,118 | 885 | 592 | 18,583 | |||||||||||
Cumulative Depreciation | |||||||||||||||||
Balance as at December 31, 2002 | 751 | 2,215 | 1,281 | 221 | — | 4,468 | |||||||||||
Effects of foreign exchange movement | 19 | 60 | 34 | 6 | — | 119 | |||||||||||
Depreciation charge | 173 | 355 | 614 | 59 | — | 1,201 | |||||||||||
Disposals/Transfers | — | (60 | ) | (1,397 | ) | — | — | (1,457 | ) | ||||||||
Balance as at December 31, 2003 | 943 | 2,570 | 532 | 286 | — | 4,331 | |||||||||||
Effects of foreign exchange movement | 237 | 645 | 133 | 72 | — | 1,087 | |||||||||||
Depreciation charge | 240 | 679 | 754 | 95 | — | 1,768 | |||||||||||
Disposals/Transfers | — | (43 | ) | (570 | ) | (9 | ) | — | (622 | ) | |||||||
Balance as at December 31, 2004 | 1,420 | 3,851 | 849 | 444 | — | 6,564 | |||||||||||
Net book value December 31, 2002 | 1,828 | 1,245 | 1,373 | 176 | 257 | 4,879 | |||||||||||
Net book value December 31, 2003 | 2,779 | 3,486 | 2,073 | 241 | 25 | 8,604 | |||||||||||
Net book value December 31, 2004 | 3,294 | 4,423 | 3,269 | 441 | 592 | 12,019 |
F-12
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
9. Short Term Loans and Credit Facilities
The Company has banking facilities with two banks which are both used to support the Company with working capital. These comprise overdraft credit agreement with BRE Bank S.A. and Citibank Handlowy S.A.
Bank name | Expiration date | Available amount in thousands of PLN | Type of security | |||
BRE Bank SA | January 30, 2006 | 50,000 | Global assignment of receivables | |||
Citibank Handlowy S.A. | June 20, 2005 | 67,000 | Global assignment of receivables, registered pledge on assets, insurance policy |
As of December 31, 2004 the total debt outstanding under Citibank Handlowy S.A. revolving credit facilities was PLN 21.8 million ($7.3 million) with PLN 45.2 million ($15.1 million) available and PLN 0 million drawn down under BRE Bank S.A. credit facilities with PLN 50.0 million ($16.7 million) available.
These facilities are disclosed in the financial statements as:
December 31, | ||||||
2004 | 2003 | |||||
Overdrafts | $ | 7,305 | $ | 13,379 | ||
Related party loan | 5,483 | — | ||||
Third party short term loan | 4,236 | 6,279 | ||||
Total | $ | 17,024 | $ | 19,658 | ||
In 2004 the Company concluded the loan facility agreements with Takirra Investment Corporation N.V. and Remy Cointreau S.A. amounting to EUR 1.9 million from Takirra and EUR 1.9 million from Remy. The loans will expire on December 31, 2005.
The short term loan from third parties relates to the loan agreement between WTK Soplica and J.H.H. Exploitatie Maatschapij B.V. WTK Soplica was sold by Bols in July 2005.
The overdraft and related party loans were repaid in the first half of 2005.
10. Lease Obligations
In May 2000, the Company entered into a non cancelable operating lease, for its main office in Warsaw, which stipulated monthly payments of $18,000 for six years. This lease cannot be terminated. In February 2004, the Company renegotiated this lease by signing a new agreement ending May 31, 2006 at a lower rent of $16,000 per month. In June 2004, the Company entered into another non cancelable operating lease agreement, for its Central and Eastern Europe Regional office in Warsaw. The rental agreement, with monthly payments of $6,000 will end in July 2010. The following is a schedule by years of the future rental payments under the non-cancelable operating leases as of December 31, 2004.
F-13
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
2005 | $ | 268 | |
2006 | 155 | ||
2007 | 75 | ||
2008 | 75 | ||
2009 | 75 | ||
Thereafter | 0 | ||
$ | 648 | ||
The Company also has rental agreements for warehouse space. The main external warehouse is located in Oborniki, in the proximity of the production plant and is mainly used for storage of POS materials, imported products and vodka sold to duty free and foreign customers. Monthly rentals amount to $40,000- $45,000 per month. The warehouse lease agreement can be terminated by either party with three month’s prior notice.
The rental expense incurred under operating leases during 2004, 2003 and 2002 was as follows:
2004 | 2003 | 2002 | |||||||
Rent expense | $ | 959 | $ | 925 | $ | 896 | |||
During 2004, the Company continued its policy of renewing its car and fork-lift truck fleet by way of capital leases. The future minimum lease payments for the assets under capital lease at December 31, 2004 are as follows:
2005 | $ | 1,301 | |
2006 | 844 | ||
Gross payments due | $ | 2,145 | |
11. Other accrued liabilities
Other accrued liabilities comprised:
December 31, | ||||||
2004 | 2003 | |||||
Provision for underpaid excise tax and related penalty interest | $ | 9,336 | $ | 7,463 | ||
Provision for penalty related to VAT | 318 | 255 | ||||
Liabilities related to sales of receivables with recourse | 4,478 | 3,457 | ||||
Other accruals | 5,721 | 2,700 | ||||
Total | $ | 19,853 | $ | 13,875 | ||
In 2003 the Company received a decision of the Tax inspection Office (UKS) concerning an additional excise tax payment for the period October 1 to December 31, 2002 in the amount of PLN 8.1 million ($2.1 million) and a penalty of PLN 1.3 million ($0.3 million). According to UKS, the Company failed to comply with the obligation to decrease sales prices by 20% during the six months period from October 1, 2002, which constituted a condition for a 30% excise tax decrease. These additional charges were paid in 2003 and recognized in the financial statements for the year ended December 31, 2003.
F-14
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
In 2004 the Company was subject to a similar examination for the period January 1 to March 31, 2003. As a consequence of the previous tax decision the Company decided to recognize the additional provision for underpaid excise tax of PLN 20.9 million ($ 7.0 million) and related penalty of PLN 6.9 million ($2.3 million) in the financial statements for the year ended December 31, 2003. In July 2005 the tax office issued the decision related to the period January 1 to March 31, 2003, which determined the excise tax underpayment at the level recognized by the Company.
12. Financial Instruments, Commitments and Contingent Liabilities
Financial Instruments and Their Fair Values
Financial instruments include cash and cash equivalents, accounts receivable, certain other current assets, trade accounts payable, overdraft facilities and other payables. These financial instruments are disclosed separately in the consolidated balance sheets and their carrying values approximate their fair market values. Financial instruments are denominated in stable currencies and they are of a short-term nature whose interest rates approximate current market rates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable from Polish companies. 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. The Company routinely assesses the financial strength of its customers. As of December 31, 2004 and 2003, the Company had no significant concentrations of credit risk. The Company has not experienced large credit losses in the past. The Company restricts temporary cash investments to financial institutions with high credit ratings.
Inflation and Currency Risk
The Polish government has adopted policies that in recent years have lowered and made more predictable the country’s level of inflation. The annual rate of inflation was approximately 1.1% in 2002, 1.7% in 2003 and 3.5% in 2004. Using average National Bank of Poland exchange rates for the full year, the zloty in comparison to the U.S. Dollar appreciated by 9% in 2004, 2.6% in 2003 and 3.7% in 2002.
Supply contracts
The basic raw materials used in the production of spirits include rectified spirits and packaging materials such as bottles, labels, caps and cartons. Bols’ agreements with the suppliers of these raw materials are generally negotiated with indefinite terms, subject to each party’s right of termination upon six months’ prior written notice. The prices for these raw materials are negotiated every year, except for rectified spirits which are negotiated every six months. Bols has several suppliers for each raw material in order to minimize the effect on its business if a supplier terminates its agreement with Bols or if disruption in supply of raw materials occurs for any other reason. In general, fluctuations in the prices of raw materials have not had a material adverse effect on the operating results of our production business.
F-15
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
13. Related Party Transactions
The Company had relationships with the following related parties; CLS Remy Cointreau S.A., Takirra Investment Corporation N.V., RC One, Bols Distilleries B.V., Bols International Export Licenses B.V., Bols Hungary Kft, Unipol B.V, and others.
All imported products distributed by the Company in Poland were purchased from related parties such as: CLS Remy Cointreau S.A., RC One, Bols International Export Licenses B.V.
Unipol B.V. is the owner of Bols trade mark. Botapol were obliged to pay charges concerning the license for using theBols trade mark in connection with the manufacturing, marketing and use ofBols vodka in Poland and Russia. In 2004 the charges concerning this license agreement amounted to $2.8 million.
Bols Sp. z o.o. renders services for CLS Remy Cointreau concerning the management of the Central and Eastern Europe Region (“CEE”) of Remy Cointreau.
In 2004 the Company concluded a loan facility agreements with Takirra Investment Corporation N.V. and Remy Cointreau S.A. amounting to EUR 1.9 million from Takirra and EUR 1.9 million from Remy. The loans will expire on December 31, 2005.
The revenues and expenses and the nature of transactions are as below:
Revenues | Nature | Expenses | Nature | |||||||
CLS Remy Cointreau | $ | 1,009 | Services of CEE Region management | $ | 266 | Import of products | ||||
Bols Distilleries B.V. | 399 | Marketing services of Russian Market | — | |||||||
Bols International Export Licenses B.V. | 81 | Sales of Bols products and production materials | 2,352 | Import of products | ||||||
Bols Hungary Kft | 1,103 | Sales of Bols products and production materials | 9 | Logistic services | ||||||
Maxxium Czech | 120 | Sales of Bols products | 5 | Services | ||||||
Maxxium Denmark A/S | 231 | Sales of Bols products | — | |||||||
Maxxium Norge A/S | 5 | Sales of Bols products | — | |||||||
Maxxium Finland A/S | 20 | Sales of Bols products | — | |||||||
UNIPOL B.V. | — | 2,793 | License for Bols Trade Mark | |||||||
RC One | — | 1,065 | Import of products | |||||||
Total | $ | 2,968 | $ | 6,490 | ||||||
F-16
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
Accounts receivable from related parties presented on our year-end balance sheet is as follows:
December 31, | ||||||
2004 | 2003 | |||||
Bols Hungary Kft | $ | 442 | $ | 108 | ||
Maxxium Czech A/S | 13 | 120 | ||||
Maxxium Danmark A/S | — | 4 | ||||
Maxxium Norge A/S | 3 | — | ||||
CLS Remy Cointreau | 1,238 | 864 | ||||
Bols Distilleries B.V. | 517 | 24 | ||||
Bols Sports & Travels B.V. | 8 | — | ||||
Bols International Export Licenses B.V. | 1 | 34 | ||||
Rother | 1 | 3 | ||||
Total | $ | 2,223 | $ | 1,157 | ||
Accounts payable with related parties presented on our year-end balance sheet is as follows:
December 31, | ||||||
2004 | 2003 | |||||
Botapol Management B.V. | $ | 4,824 | $ | — | ||
Bols Hungary Kft | 6 | — | ||||
Maxxium Danmark A/S | 48 | — | ||||
CLS Remy Cointreau | 197 | 126 | ||||
Bols Distilleries B.V. | 119 | — | ||||
RC One | 673 | — | ||||
Bols Sports & Travels B.V. | 35 | 57 | ||||
Unipol B.V. | 682 | 515 | ||||
Bols International Export Licenses B.V. | — | 159 | ||||
Del Bols B.V. | 71 | 59 | ||||
Total | $ | 6,655 | $ | 916 | ||
The majority of related parties accounts payable and receivable were repaid or compensated by July 2005.
14. Derivative financial instruments
There were no derivative financial instruments in any of the financial statements periods presented.
F-17
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
15. Business combination
On June 28, 2004, the acquisition agreement of Hillcroft from Bruncaster Limited and Milton Limited was signed. Hillcroft is the owner of the trade marks forSoplica andSlaska vodka. The Company acquired the trade marks and related assets for EUR 8.1 million ($12.4 million). The trade marks were recorded at their estimated fair values of approximately $11.1 million determined by the management with the assistance of independent valuers. The trade marks are deemed to have an indefinite useful life. The results of the acquired company for the period from July 1, 2004 are included in the 2004 Income statement.
Purchase price | $ | 12,362 | ||
Net asset base | (1,252 | ) | ||
Valuation of trade marks | (11,110 | ) | ||
Goodwill | $ | — | ||
The condensed balance sheet of Hillcroft at the acquisition date is as below:
June 28, 2004 | |||
Cash | $ | 468 | |
Accounts receivable | 802 | ||
Intangible assets | 71 | ||
Total Assets | $ | 1,341 | |
Notes and accounts payable | $ | 5 | |
Tax payable | 84 | ||
Equity | 1,252 | ||
Total Liabilities and stockholders’ equity | $ | 1,341 | |
16. Subsequent events
On July 1, 2005 the Company sold all its shares in WTK Soplica for the amount of $5 thousand.
On June 27, 2005, Rémy Cointreau S.A., Botapol Management B.V. and Takirra Investment Corporation N.V. , the owners of the Company, entered into a Share Sale Agreement with Central European Distribution Corporation (“CEDC”) and its wholly-owned subsidiary, Carey Agri International Poland Sp. z o.o. (“Carey Agri”) to sell 100% of the outstanding capital stock of the Company to CEDC for US $270.0 million. CEDC acquired 47.1% of the Company’s stock and Carey Agri acquired 52.9% of the Company’s stock. On August 17, 2005 the sale of the Company to CEDC and Carey Agri was completed, following approval of the Polish anti-monopoly office.
F-18
BOTAPOL HOLDING B.V.
NOTES TO FINANCIAL STATEMENTS
Amounts in columns expressed in thousands of U.S. dollars
17. Supplemental Income Statement information.
Other non-operating expenses comprises:
2004 | 2003 | 2002 | ||||||||||
Accrued unpaid excise tax penalties | $ | — | $ | (1,781 | ) | $ | — | |||||
Accrual for VAT receivables and tax penalties | (1,137 | ) | — | — | ||||||||
Gain/(Loss) on fixed assets disposal | (36 | ) | 379 | 401 | ||||||||
Bank charges | (52 | ) | (577 | ) | (1,125 | ) | ||||||
Total | $ | (1,225 | ) | $ | (1,979 | ) | $ | (724 | ) | |||
F-19