SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
May 14, 2002
(Date of Report)
Central European Distribution Corporation
(Exact name of registrant as specified in its charter)
Delaware 0-24341 54-1865271
(State or other jurisdiction (Commission file number) (IRS employer identification number)
of incorporation)
1343 Main Street, Suite 301, Sarasota Florida 34236
(Address of Principal Executive Offices)
Registrants telephone number, including area code: (941) 330 1558
ITEM 7 Financial Statements, Pro forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
INDEX
Page
----
PART I. Financial Information
- ------- ---------------------
Item 1. Report of Independent Auditors..................................................................... 3
Item 2. Financial Statements...............................................................................
Balance Sheets at December 31, 2000 and December 31, 2001.......................................... 4
Statements of Income for the years ended December 31, 2000
and December 31, 2001.............................................................................. 5
Statements of Changes in Stockholders' Equity for the years ended
December 31, 2000 and December 31, 2001 ........................................................... 6
Statements of Cash Flows for the years ended December 31, 2000
and December 31, 2001 ............................................................................. 7
Notes to Financial Statements...................................................................... 8-14
(b) Unaudited Pro forma Financial Information
-----------------------------------------
Unaudited pro forma condensed combined balance sheet at December 31, 2001.......................... 16
Unaudited pro forma condensed combined income statement for the year ended
December 31, 2001.................................................................................. 17
Notes to the unaudited pro forma financial information ............................................ 18-21
2
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of Damianex S.A.
We have audited the accompanying balance sheets of Damianex S.A. as of December
31, 2000 and 2001 and the related statements of income, changes in stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Damianex S.A. at December 31,
2000 and 2001, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States.
ERNST & YOUNG AUDIT Sp. z o.o.
Warsaw, Poland
April 22, 2002
3
DAMIANEX S.A.
BALANCE SHEETS
(Amounts in columns expressed in thousands)
December 31,
------------------
2000 2001
------- -------
ASSETS
Current Assets
Cash and cash equivalents $ 2,688 $ 2,327
Accounts receivable, (net of allowance for doubtful accounts of
$55,000 and $273,000, respectively) 5,795 6,964
Inventories 4,282 4,356
Deferred income taxes 2 19
Prepaid expenses and other current assets 178 54
------- -------
Total Current Assets 12,945 13,720
Non-current deferred income taxes 164 172
Property, plant, and equipment, net 1,370 1,550
------- -------
Total Assets $14,479 $15,442
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 6,431 $ 3,346
Bank loans and overdraft facilities 5,303 8,012
Income and other taxes payable 264 308
Other current liabilities 143 205
------- -------
Total Current Liabilities 12,141 11,871
Commitments and contingencies
Stockholders' Equity
Common Stock ($57 par value, 30,500 shares authorized, issued and
outstanding at December 31, 2000 and 2001) 1,739 1,739
Retained earnings 617 1,727
Accumulated other comprehensive income (loss) (18) 105
------- -------
Total Stockholders' Equity 2,338 3,571
------- -------
Total Liabilities and Stockholders' Equity $14,479 $15,442
======= =======
4
DAMIANEX S.A.
STATEMENT OF INCOME
(Amounts in columns expressed in thousands)
Year ended December 31,
-----------------------
2000 2001
------- -------
Net sales $59,135 $78,977
Cost of goods sold, excluding depreciation 52,756 70,262
------- -------
6,379 8,715
Selling, general and administrative expenses, excluding depreciation 4,976 6,008
Bad debt expense 45 218
Depreciation of tangible fixed assets 49 258
------- -------
Operating income 1,309 2,231
Non-operating income (expense)
Interest expense (401) (555)
Interest income 62 108
Realized and unrealized foreign currency transaction gains, net 16 140
Other expenses, net (88) (193)
------- -------
Income before income taxes 898 1,731
Income tax expense (296) (520)
------- -------
Net income $ 602 $ 1,211
======= =======
See accompanying notes.
5
DAMIANEX S.A.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Monetary amounts in columns expressed in thousands)
Accumulated
other
Common Retained comprehensive
Stock Earnings income/(loss) Total
--------------- -------- ------------- ------
No. of
shares Amount
------ ------
Balance at 31,
December 1999 30,500 $1,739 $ 15 $ 184 $1,938
Net income 602 -- 602
Foreign currency
translation adjustment -- -- -- (202) (202)
(net of tax effect)
------ ------ ------ ----- ------
Comprehensive income -- -- 400
------ ------ ------ ----- ------
Balance at 31, December 30,500 1,739 617 (18) 2,338
2000
Net income -- -- 1,211 -- 1,211
Foreign currency
translation adjustment
(net of tax effect) -- -- -- 123 123
------ ------ ------ ----- ------
Comprehensive income -- -- 1,334
Dividend declared and paid (101) (101)
------ ------ ------ ----- ------
Balance at 31, December 30,500 $1,739 $1,727 $ 105 $3,571
2001
====== ====== ====== ===== ======
See accompanying notes.
6
DAMIANEX S.A.
STATEMENTS OF CASH FLOWS
(amounts in columns expressed in thousands)
Year ended December 31,
-----------------------
2000 2001
------- -------
Operating Activities
Net income $ 602 $ 1,211
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation 49 258
Bad debt provision 45 218
Deferred income tax benefit (2) (25)
Gain on disposal of fixed assets (6) (14)
Changes in operating assets and liabilities:
Accounts receivable (2,203) (1,387)
Inventories (3,617) (74)
Prepayments and other current assets (156) 124
Trade accounts payable 4,545 (3,085)
Income and other taxes payable 216 44
Other payables 141 199
------- -------
Net Cash used in Operating Activities (386) (2,531)
Investing Activities
Purchase of property and equipment (645) (481)
Proceeds from sale of equipment 35 43
------- -------
Net Cash used in Investing Activities (610) (438)
Financing Activities
Proceeds from short-term borrowings 5,303 8,012
Repayments of short-term borrowings (1,717) (5,303)
Dividends paid -- (101)
------- -------
Net Cash Provided by Financing Activities 3,586 2,608
------- -------
Net Increase (Decrease) in cash and cash equivalents 2,590 (361)
Cash and cash equivalents at beginning of period 98 2,688
------- -------
Cash and cash equivalents at end of period $ 2,688 $ 2,327
======= =======
Supplement cash flow information:
Interest paid $ 397 $ 447
Income taxes paid $ 163 $ 391
See accompanying notes.
7
DAMIANEX S.A.
NOTES TO FINANCIAL STATEMENTS
(amounts in columns expressed in thousands of USD)
1. Organization and Description of Business
The business "Damianex was originally organized as a partnership ("the
Partnership") during 1991. Damianex S.A. (the "Company", "S.A.") was established
on December 10, 1998 as a Polish Joint Stock Company. The Company started
trading activities on May 21, 1999, when inventories were transferred to the
Company from the Partnership in exchange for cash. The partnership ceased to
exist during 2000. The Company's main activities are the wholesale of alcoholic
(mainly beer) and non-alcoholic beverages. The Company has approximately 600
employees and 11 branch offices, which are located throughout south-eastern
Poland. The Company's headquarters are located in Lancut, Poland and all of the
Company's operations are conducted within the boundaries of Poland.
Pursuant to Polish statutory requirements, Damianex S.A. may pay annual
dividends, based on their audited Polish statutory financial statements, to the
extent of their retained earnings as defined. At December 31, 2001,
substantially all retained earnings were available for payment of dividends.
2. Accounting Policies
The significant accounting policies and practices followed by the Company are as
follows:
Basis of Presentation
The Company maintains its books of account and prepares its statutory financial
statements in Polish zloties (PLN) in accordance with Polish statutory
requirements and the Accounting Act of September 29, 1994. The accompanying
financial statements have been adjusted to reflect accounting principles
generally accepted in the United States ("US GAAP").
Foreign Currency Translation and Transactions
The accompanying financial statements have been prepared in US Dollars.
The Company's functional currency is the local currency -Polish Zloty. Assets
and liabilities are translated to US Dollars at the exchange rate in effect at
each year end. Income statement accounts are translated to US Dollars at the
average rate of exchange prevailing during the year. Translation adjustments
(net of taxes) arising from the use of differing exchange rates from period to
period are included as a separate component of stockholders' equity. Gains and
losses from foreign currency transactions are included in net income for the
period.
The exchange rate used on zloty denominated transactions and balances for
translation purposes as of December 31, 2000 and 2001 for one US dollar was
4.149 PLN and 3.98 PLN respectively. As of April 22, 2002, the rate had changed
to 4.04 PLN.
8
DAMIANEX S.A.
NOTES TO FINANCIAL STATEMENTS
Monetary amounts in columns expressed in thousands
Property, Plan and Equipment
Property, plant and equipment are recorded at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets. Depreciation periods are as follows:
Type Depreciation life in years
- ------------------------- --------------------------
Land --
Buildings 25-40
Machinery and Equipment 2-5
Transportation Equipment 2-5
Other 2-7
The Company periodically reviews property, plant and equipment, when indicators
of impairment exist and if the value of the asset is impaired, an impairment
loss is recognized. The Company recognizes impairment losses on long-lived
assets in the event the net book values of such assets exceeds the future
undiscounted cash flows attributable to such assets. No such impairment
adjustments have been recorded by the Company.
Revenue Recognition
Revenue is recognized when goods are shipped or delivered to customers in
accordance with United States Securities and Exchange Commission Staff
Accounting Bulletin 101. Sales are presented net of sales returns and discounts.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Inventories are comprised primarily of beer and non-alcoholic
beverages. The Company has not experienced significant losses from spoilage or
obsolescence.
Cash and Cash Equivalents
Short-term investments that have a maturity of three months or less at the date
of purchase are classified as cash equivalents. All of the amounts were located
in bank accounts in Poland at December 31, 2001 and 2000.
Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results may differ from
those estimates and such differences may be material to the financial
statements.
Income Taxes
The Company computes and records income taxes in accordance with the liability
method.
Comprehensive income
Comprehensive income, is defined as all changes in equity during a period except
those resulting from investments by owners and distributions to owners.
Comprehensive income includes net income adjusted by, among other items, foreign
currency translation adjustments. The foreign translation gains and losses on
the translation from Polish zloties to US dollars are classified as a separate
component of the stockholders' equity as "accumulated other comprehensive income
(loss)".
During the period ended December 31, 2001, the Company incurred foreign currency
translation gains of $123,000 (net of tax effect) and reported this amount as
part of the accumulated comprehensive income in stockholders' equity of
$105,000. The total of the accumulated other comprehensive income consists of
currency translation adjustments
9
DAMIANEX S.A.
NOTES TO FINANCIAL STATEMENTS
Monetary amounts in columns expressed in thousands
($12,000 net loss, net of taxes) and adjustments from discontinuing
hyper-inflationary accounting for assets purchased prior to January 1, 1998
($117,000 gain, net of taxes)
Employee benefits
The Company is required pursuant to Polish labor laws, to pay a bonus of one
months salary to employees upon retirement. The estimated liability for these
benefits is accrued on a current basis. The Company also accrues for vacation
pay.
Recently issued accounting pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) released SFAS 141
"Business Combinations". This Statement requires that combinations be accounted
for by a single method - the purchase method. This Statement also requires among
other things, separate recognition of intangible assets apart from goodwill if
they meet the prescribed criteria. The provisions of this Statement apply to all
business combinations initiated after June 30, 2001.
In June 2001, the FASB released SFAS 142 "Goodwill and other intangible assets".
This Statement addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible Assets. It addresses among other things, how intangible assets that
are acquired individually or with a group of other assets (but not those
acquired in a business combination) should be accounted for in financial
statements upon their acquisition. The provisions of this Statement are required
to be applied starting with fiscal years beginning after December 15, 2001.
The Company does not anticipate that these two statements will have a material
effect on their financial statements.
In August 2001, the FASB released SFAS 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". This standard supersedes SFAS 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed
of". This statement removes goodwill from its scope, (addressed in SFAS 142) and
addresses long-lived assets to be held and used, to be disposed of other than by
sale and to be disposed of by sale. The provisions of this statement are
required to be applied starting with fiscal years beginning after December 15,
2001. The Company does not anticipate that this statement will have a material
effect on their financial statements.
3. Property, Plant and equipment
Property, plant and equipment, presented net of accumulated depreciation in the
balance sheets, consists of:
December 31,
-----------------
2000 2001
------ ------
Land $ 78 $ 87
Buildings 738 799
Machinery and equipment 57 86
Transportation equipment 575 878
Other 148 179
------ ------
1,596 2,029
Less accumulated depreciation 226 479
------ ------
Property, plant and equipment, net $1,370 $1,550
====== ======
10
DAMIANEX S.A.
NOTES TO FINANCIAL STATEMENTS
(amounts in columns expressed in thousands of USD)
4. Allowance for Doubtful Accounts
Changes in the allowance for doubtful accounts were as follows:
Year ended December, 31
-----------------------
2000 2001
---- ----
Balance, beginning of year $10 $ 55
Provision for doubtful accounts 45 218
-----------------------
Balance, end of year $55 $273
=======================
5. Short-term bank loan and overdraft facilities
During 2000, the Company entered into two overdraft facilities that were
denominated in foreign currencies. These were: 4,707,900 Swiss Franc (CHF)
(secured by an authorization to the Company's current bank account and the
cession of rights to an insurance agreement, with an interest rate of 3 months
CHF LIBOR) and a $1,220,000 USD facility which was secured with a bill of
exchange, cession of rights to an insurance agreement and take-over rights in
regards to inventory and fixed assets. The interest rate applied amounted to 6
months USD LIBOR plus 1%. The Company also opened a 5,000,000 Polish Zloty (PLN)
overdraft facility, secured by cession of rights to an insurance agreement, bill
of exchange and take-over rights to vehicles. The interest rate applied was
WIBOR.
December 31, 2000
-----------------
Swiss Franc (CHF), maximum available CHF 4,708 ($2,876) $2,876
USD overdraft, maximum available $1,220 1,220
Polish Zloty (PLN), maximum available PLN 5,000 ($1,207) 1,207
------
Total $5,303
======
During 2001, all outstanding overdraft facilities as at 31 December 2000 were
repaid. A new overdraft facility was acquired for 4,000,000 Swiss Francs (CHF)
which was secured by the Company's inventories. The interest rate was set at 3
month CHF LIBOR plus 1.8%. The other overdraft facilities opened in 2001 were as
follows: 18,000,000 Polish Zloty (PLN), which was secured by the (pound)ancut
premises, and authorization to the Company's bank accounts and inventories. The
interest rate applied was 1 month WIBOR plus 0.7%; 10,000,000 PLN which was
secured with authorization to the Company's bank accounts and take over rights
of Company inventories, interest rate at 1 month WIBOR + 2%.
December 31, 2001
-----------------
Swiss Franc (CHF), maximum available CHF 4,000 ($2,384) $1,191
Polish Zloty (PLN), maximum available PLN 18,000 ($4,515) 4,312
Polish Zloty (PLN), maximum available PLN 10,000 ($2,509) 2,509
------
Total $8,012
======
The weighted average interest rate on short-term borrowings at December 31, 2001
and 2000 was approximately 14.33%, and 14.55% respectively.
6. Income Taxes
11
DAMIANEX S.A.
NOTES TO FINANCIAL STATEMENTS
(amounts in columns expressed in thousands of USD)
Income tax expense for the years ended December 31, 2000 and 2001, is summarized
below:
2000 2001
---- ----
Current Polish income tax expense $298 $545
Deferred Polish income tax benefit (2) (25)
---- ----
Income tax expense $296 $520
==== ====
Total income tax expense varies from expected income tax expense computed at
Polish statutory rates (30% in 2000 and 28% in 2001) as follows:
Year ended December 31,
-----------------------
2000 2001
---- ----
Tax at Polish statutory rate $269 $485
Increase in deferred tax asset valuation allowance relating
primarily to bad debt expense 10 41
Permanent differences between financial and taxable income 17 (6)
---- ----
Income tax expense $296 $520
==== ====
Significant components of the Company's deferred tax assets is follows:
December 31,
------------
2000 2001
---- -----
Deferred tax liabilities:
Unrealized foreign exchange gains $ -- $(12)
Prepaid expenses (14) --
---- ----
$(14) $(12)
Deferred tax assets:
Differences on fixed assets resulting from
hyperinflationary adjustments and in the tax base $164 $172
Allowance for doubtful accounts receivable 17 76
Unrealized foreign exchange losses 11 --
Accrued expenses and deferred income -- 8
---- ----
178 244
Less valuation allowance (12) (53)
---- ----
Net deferred tax asset $166 $191
==== ====
Consisting of:
Current deferred tax asset $ 2 $ 19
Non-current deferred tax asset 164 172
---- ----
$166 $191
==== ====
Valuation allowances are provided when it is more likely than not that some or
all of the deferred tax assets will not be realized in the future. These
evaluations are based on expected future taxable income and expected reversals
of the various net deductible temporary differences. The valuation allowance
relates primarily to the future tax deductibility of the allowance for bad debts
which may not be deductible under local statutes.
12
DAMIANEX S.A.
NOTES TO FINANCIAL STATEMENTS
(amounts in columns expressed in thousands of USD)
In November 1999, legislation was enacted which reduced the corporate income tax
rates in Poland effective January 1, 2000. The tax rate of 32% was reduced to
30% in 2000, 28% in 2001 and 2002, 24% in 2003 and 22% thereafter.
The Company's tax liabilities (including corporate income tax, Value Added Tax
(VAT), social security and other taxes) may be subject to examinations by Polish
tax authorities for up to five years from the end of the year the tax is
payable. As the application of tax laws and regulations and transactions are
susceptible to varying interpretations, amounts reported in the financial
statements could be changed at a later date upon final determination by the tax
authorities.
7. Financial Instruments, Commitments and Contingent Liabilities
Financial Instruments With On-Balance Sheet Risk and Their Fair Values
Financial instruments with on-balance sheet risk include cash and cash
equivalents, accounts receivable, certain other current assets, trade accounts
payable, bank loans and overdraft facilities, and other payables. These
financial instruments are shown separately in the balance sheets and their
carrying values approximate their fair values. This is because substantially all
of these financial instruments have short maturity periods or carry interest at
rates that approximate current market rates. The Company does not utilize
financial derivatives such as foreign currency contracts or interest rate swaps.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of accounts receivable from Polish companies. The
Company restricts temporary cash investments to financial institutions with high
credit standing. Credit is given to customers only after a thorough review of
their credit worthiness. The Company does not normally require collateral with
respect to credit sales. As of December 31, 2000 and 2001, the Company had no
customers which accounted for more than ten percent of outstanding receivables.
The Company has not experienced significant credit losses in the past.
Currency Risk
A portion of Company's bank loans and financial costs are expected to continue
to be, denominated in or indexed to the other non-Polish denominated currency.
By contrast, all of the Company's revenue is denominated in Polish zloty. Any
devaluation of the Polish zloty against the non-Polish denominated currency,
that the Company is unable to offset through price adjustments will require the
Company to use a larger portion of its revenue to service its non-zloty
denominated obligations.
Supply contracts
The Company has various agreements covering its sources of supply. Either party
on relatively short notice may terminate some of them. Thus, there is a risk
that some portion of the Company's supply of products could be curtailed at any
time. Management believes that if these arrangements were terminated that
alternative suppliers would be found without significant disruption to the
business.
Lease Obligations
The Company has cancelable rental agreements for a number of the branch office
locations. Monthly rentals range from approximately $4000 to $8000. All the
branch office leases can be terminated by either party within two to three
months.
The rental expense incurred under operating leases during 2000 and 2001 was as
follows:
2000 2001
---- ----
Rent expense $246 $431
==== ====
13
DAMIANEX S.A.
NOTES TO FINANCIAL STATEMENTS
(amounts in columns expressed in thousands of USD)
8. Related party transactions
During 2000, the Company acquired the following business operating assets from
the Partnership for cash consideration, which was equivalent to the underlying
carrying value in the accounts of the partnership.
2000
----
Vehicles $156
Computers $ 10
Other $ 12
Inventory $ 60
9. Subsequent Events
On April 22, 2002, the shareholders of the Company sold one hundred percent of
their shares to Central European Distribution Corporation ("CEDC"), a United
States company and to its wholly-owned subsidiary Carey Agri International
Poland. The sales price consisted of approximately $7,138,000 of cash and
152,996 unregistered newly issued common shares of CEDC, with a 1-year
restriction on sale.
On April 13, 2002, a dividend of $740,000 was declared with respect to prior
earnings. The dividend is to be paid over five consecutive months, starting May
2002.
14
Central European Distribution Corporation
Pro Forma Financial Statements
Pro Forma Combined Condensed Financial Information
As at and for the year ended December 31, 2001
The unaudited pro forma condensed combined balance sheet information set for
below for Central European Distribution Corporation (CEDC) and Damianex S.A.
gives effect to the purchase on April 22, 2002 of Damianex S.A. by CEDC as if it
had been completed on December 31, 2001. The unaudited pro forma condensed
combined income statement for 2001 assumes the acquisition was completed on
January 1, 2001. The unaudited pro forma condensed combined balance sheet and
income statement have been presented as of and for the year ended December 31,
2001. The data is subject to the assumptions and adjustments in the accompanying
notes to the pro forma balance sheets and income statements. CEDC has accounted
for the acquisition of Damianex S.A. as a purchase in accordance with SFAS 141.
The pro forma information does not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements and therefore should be read in conjunction with the historical
financial statements of CEDC included in its Annual 2001 Report on Form 10K,
which are on file with the Securities and Exchange Commission; and the
historical financial statements of Damianex S.A. for 2000 and 2001, included
herein.
The pro forma adjustments do not reflect operating efficiencies and cost savings
that may be achievable with respect to the newly acquired company. The pro forma
adjustments do not include any adjustments to the historical operating data for
future changes in selling prices or operating changes.
A final determination of required purchase accounting adjustments, including the
allocation of the purchase price to the assets acquired and liabilities assumed
based on their respective estimated fair values, will be made after completion
of the escrow period (the date government approval in regards to the ownership
of the acquired real estate is received, approximately 3 months) and upon
receipt of an independent valuation. Accordingly, the purchase accounting
adjustments and the following pro forma condensed combined balance sheet and
income statement information may be revised. CEDC currently knows of no events
that would require a substantial change to the preliminary purchase price
allocation.
The pro forma financial information is presented for illustrative purposes only
and is not intended to be indicative of the financial position and operating
results that would have occurred if the acquisition had been consummated in
accordance with the assumptions set forth below nor is it intended to be a
forecast of future operating results or financial position.
Central European Distribution Corporation
15
Central European Distribution Corporation
Unaudited Pro Forma Condensed Combined Balance Sheet Information
December 31, 2001
Amounts in columns expressed in thousands of USD
Total
Pro Forma
Historical Historical Pro Forma CEDC with
CEDC A Damianex A Adjustments Damianex
SA SA
------------- ------------- ----------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 2,466 $ 2,327 D 7,854
D 2,500
B (7,455) $ 7,692
Accounts receivable, net 38,102 6,964 45,066
Inventories 9,001 4,356 13,357
Deferred income tax and other current 2,040 73 C 318 2,431
assets
------- ------- ------- -------
51,609 13,720 3,217 68,546
Property, plant and equipment, net 3,372 1,550 C 368 5,290
Intangible assets, net 3,002 -- 3,002
Goodwill, net 9,969 -- C 5,664 15,633
Deferred income taxes and other assets 1,025 172 1,197
------- ------- ------- -------
Total Assets $68,977 $15,442 $ 9,249 $93,668
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $29,685 $ 3,346 C 740 $33,771
Bank loans and overdraft facilities 9,861 8,012 17,873
Income and other taxes payable 1,307 308 1,615
Other accrued liabilities 1,692 205 1,897
Current portion of debt and capital leases 2,181 -- 2,181
------- ------- ------- -------
44,726 11,871 740 57,337
Non-current deferred taxes -- -- C 92 92
Long-term portion of debt and capital leases 3,495 -- D 2,500 5,995
Temporary equity -- B 1,634 1,634
Stockholders' Equity
Common stock 46 1,739 D 7
E (1,739) 53
Additional paid in capital 15,383 -- D 7,847 23,230
Retained earnings 7,161 1,727 E (1,727) 7,161
Accumulated other comprehensive income
(loss) (1,684) 105 E (105) (1,684)
Less Treasury shares (150) -- (150)
------- ------- ------- -------
20,756 3,571 4,283 28,610
------- ------- ------- -------
Total Liabilities and Stockholders' $68,977 $15,442 $ 9,249 $93,668
Equity
======= ======= ======= =======
16
Central European Distribution Corporation
Unaudited Pro Forma Condensed Combined Income Statement Information
For the year ended December 31, 2001
Amounts in columns expressed in thousands of USD (except per share data)
Total
Pro Forma
Historical CEDC with
Historical Damianex A Pro Forma Damianex
CEDC A SA Adjustments SA
---------- ---------- ----------- ---------
Net sales $178,236 $78,977 $257,213
Cost of goods sold, excluding depreciation 154,622 70,262 224,884
-------- ------- ----- --------
23,614 8,715 32,329
Selling, general and administrative expenses,
excluding depreciation 16,445 6,008 22,453
Bad debt expense 711 218 929
Depreciation of tangible fixed assets 841 258F 10 1,109
Amortization of intangible assets 762 -- 762
-------- ------- ----- --------
Operating income 4,855 2,231 (10) 7,076
Non-operating income (expense)
Interest expense (1,345) (555)D (106) (2,006)
Other income, net 148 55 -- 203
-------- ------- ----- --------
Income before income taxes 3,658 1,731 (116) 5,273
Income tax (expense) benefit (1,132) (520)G 33 (1,619)
-------- ------- ----- --------
Net income $ 2,526 $ 1,211 $ (83) $ 3,654
======== ======= ===== ========
Net income per share of common stock , basic $ 0.58 $ 0.67
======== ========
Net income per share of common stock , diluted $ 0.57 $ 0.66
======== ========
17
Central European Distribution Corporation
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
For the year ended December 31, 2001
Amounts in columns expressed in thousands of USD (except per share data)
A. These columns represent the historical balance sheet and results of
operations as follows:
CEDC - combined results as of and for the year ended December 31, 2001
Damianex S.A. - historical results as of and for the year ended December
31, 2001
B. On April 22, 2002, CEDC purchased the outstanding shares of Damianex S.A.
Total consideration for the acquisition consisted of the following:
Cash consideration to stockholders $7,138
152,996 shares of CEDC common stock
1,634
Acquisition costs (estimated) 317
------
$9,089
======
CEDC's common stock was valued at the average stock price a few days before
and after the agreement terms were finalized. The shares issued are not
registered and may not be sold without the consent of CEDC for one year
subsequent to the acquisition.
The Sellers were granted an option to sell the acquired CEDC stock ("Put
Option") back to the Company equal to $12.00 per share from April 23, 2003
to April 29, 2003. See note I for further information.
As part of the Agreement, approximately $3,200,000 was transferred to an
escrow account. The funds in the escrow account will be paid to the sellers
when CEDC receives approval from the Polish Government in regards to the
ownership of the real estate element of the transaction (estimated to be
approximately 3 months). If approval is not received, the real estate will
be separated from the Company and sold to a mutually agreed upon third
party for a mutually agreed price. As part of the sale of the real estate,
a lease agreement would be established for a period of three to five years
with the buyers which shall not exceed the market price applicable in the
region. If the real estate is not sold within six months from the day the
Polish Government informs the parties of its refusal, the funds in the
escrow account will be transferred back to CEDC with 50% of the interest
earned on the prepayment.
18
Central European Distribution Corporation
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
For the year ended December 31, 2001
Amounts in columns expressed in thousands of USD (except per share data)
C. In connection with the preparation of the Pro Forma Condensed Combined
Balance sheet information at December 31, 2001, the book values of certain
assets were adjusted to estimated fair values as follows (assuming the
Polish Government approves the real estate element of the transaction):
Cost of acquisition of Damianex S.A. $ 9,089
Historical net book value of Damianex S.A. at December 31, 2001 *2,831
To increase land to estimated fair value 165
To increase buildings to estimated fair value 203
To record deferred taxes on increase of book values of land and
buildings (92)
Other current assets **318
-----
-------
Preliminary goodwill $ 5,664
=======
* Assuming the acquisition was finalized on December 31, 2001, the
historical net book has been reduced to reflect a dividend declared in 2002
in the amount of $740,000.
** Assuming the acquisition was finalized on December 31, 2001, the
goodwill was adjusted to reflect the actual acquired goodwill on April 22,
2002.
In accordance with SFAS 142, goodwill is no longer amortized. The
allocation of the excess purchase price to goodwill may be revised when the
Company receives an independent valuation in regards to the acquisition of
the tangible and intangible business assets acquired and upon completion of
the escrow period. CEDC does not expect material adjustments from the
completion of this process.
D. The acquisition was financed as follows:
The Company secured additional long-term borrowings of approximately
$2,500,000. The interest rate on the additional borrowings is LIBOR plus
2%. The average LIBOR plus 2% rate for 2001 was approximately 4.25%. The
additional interest expense in regards to the pro forma condensed combined
income statement information is approximately $106,000. The loan is
repayable in quarterly installments commencing during the second quarter of
2003.
On March 28, 2002, CEDC finalized the private placement of 800,000 shares
of the Company's common stock. The Company received approximate net
proceeds of $7,854,000. The Company is using the proceeds as follows:
Acquisition of Damaniex $4,638
Proposed acquisition of AGIS 2,916
Other 300
------
$7,854
======
19
Central European Distribution Corporation
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
For the year ended December 31, 2001
Amounts in columns expressed in thousands of USD (except per share data)
E. The following adjustments have been made to eliminate the December 31, 2001
shareholders' equity account of Damianex.
December 31, 2001
-----------------
Common Stock $1,739
Retained earnings 1,727
Accumulated other comprehensive income,
(net of tax) 105
------
$3,571
======
F. The increase in the fair market values of the acquired buildings
subsequently increased the depreciation expense for 2001. The depreciation
expense was calculated based on the estimated average remaining life of
buildings (approximately 20 years) which is approximately 5%. The
additional depreciation expense for the year ended December 31, 2001 is
approximately $10,000.
G. The pro forma income tax entry provides consideration for the following
items:
Year ended
December 31, 2001
Interest expense $106
----
Additional tax deductible expenditures 106
Tax rate for period 28%
----
Total pro forma tax expense 30
*Deferred tax benefit 3
----
$ 33
====
*The deferred tax benefit (see paragraph C) is a result of the reversal of
the deferred tax liability in regards to additional depreciation expense
derived from the fair value adjustment of buildings. .
H. CEDC's management does not presently anticipate any significant personnel
reductions as a result of the acquisition.
I. As indicated in note B, the acquisition agreement granted the Sellers of
Damianex the option to sell the 152,996 shares granted in the business
combination back to CEDC in 12 months at a price of $12.00 per share. The
discount from the fair value of the put options will be accreted over the
12 months by a charge to retained earnings (reduction of earnings available
to common stockholders when calculating earnings per share). If the put
lapses, the shares will be transferred to equity at the accreted value. If
the shares are purchased by the Company they will be treated as treasury
shares. These shares have been disclosed in the pro forma condensed
consolidated balance sheet as temporary equity above stockholders' equity.
Prior to the exercise option period (April 23, 2003 to April 29, 2003)
these shares will be considered in the calculation of diluted earnings per
share (unless considered anti-dilutive).
20
Central European Distribution Corporation
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
For the year ended December 31, 2001
Amounts in columns expressed in thousands of USD (except
per share data)
J. Pro forma net income per share information considers the effects of shares
issued in the private placement transaction as though they were outstanding
during the period presented. Due to the put feature, the shares issued to
the selling shareholders are not considered in the basic pro forma earnings
per share calculations. The shares used for these calculations were as
follows:
Year ended December 31, 2001
-----------------------------
Historical Pro forma
---------- ---------
Basic 4,359 *5,159
Diluted 4,447 **5,241
* Includes 800,000 common shares issued in regards to the private placement
offering (see paragraph D),
** The pro forma diluted earnings per share are calculated using the pro
forma shares above. The pro forma diluted earnings per share calculation
does not include the 161,380 incremental shares as a result of applying the
reverse treasury stock method to the 152,996 common shares with attached
put options issued in connection with this acquisition. The result of this
is anti-dilutive.
As discussed in Note I, the discount of the fair value of the put options
in regards to the 152,996 shares issued for the purchase of Damianex will
be accreted over the 12 months by a charge to retained earnings (reduction
of earnings available to common stockholders when calculating earnings per
share). For purposes of the calculation of pro forma basic earnings per
share, net income disclosed in the pro forma condensed consolidated income
statement has been reduced by full accretion of the discount of $202,000,
resulting in earnings available to common stockholders of $3,452,000. This
amount is divided by the pro forma basic and diluted shares shown above to
arrive at pro forma earnings per share.
21
(c) Exhibits
2 Investment Agreement dated April 22, 2002
23 Consent of Ernst & Young Audit Sp. z o.o.
22
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Central European Distribution Corporation
(Registrant)
May 14, 2002 /s/ James Archbold
----------------------------
James Archbold
Vice President and Secretary
23