SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
June 3, 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
of incorporation) identification number)
1343 Main Street, Suite 301, Sarasota Florida 34236
(Address of Principal Executive Offices)
Registrants telephone number, including area code: (941) 330 1558
ITEM 2 Acquisition of Assets
On April 24, 2002, Central European Distribution Corporation ("the Company",
"CEDC") completed the acquisition of AGIS S.A., an alcohol wholesaler in
northern Poland. The purchase price of $6,708,978 consisted of $4,567,978 in
cash and the issuance of 172,676 shares of CEDC common stock valued at
$2,141,000. The source of the funds was a long-term loan of $1,800,000 from Bank
Fortis in Warsaw, Poland and $2,768,000 from the private placement offering of
CEDC common stock, (gross proceeds $8,400,000) finalized by the Company on March
28, 2002.
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 2001 .............................................. 4
Statements of Income for the years ended December 31, 2000 and 2001 ...................... 5
Statements of Changes in Stockholders' Equity for the years ended
December 31, 2000 and 2001 ........................................................... 6
Statements of Cash Flows for the years ended December 31, 2000
and 2001 ................................................................................. 7
Notes to Financial Statements ............................................................ 8-13
(b) Unaudited Pro forma Financial Information
Unaudited pro forma condensed combined balance sheet at December 31, 2001 ................ 15
Unaudited pro forma condensed combined income statement for the year ended
December 31, 2001 ........................................................................ 17
Notes to the unaudited pro forma financial information ................................... 18-23
2
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of AGIS S.A.
We have audited the accompanying balance sheets of AGIS 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 AGIS 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 24, 2002
3
AGIS S.A.
BALANCE SHEETS
(Monetary amounts in columns expressed in thousands)
December 31,
------------
2000 2001
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 651 $ 344
Accounts receivable (net of allowance for doubtful accounts of
$398,000 and $504,000, respectively) 7,155 6,873
Inventories 2,352 2,536
Deferred income taxes 37 48
Value added tax receivable - 911
Prepaid expenses and other current assets 20 31
-------- --------
Total Current Assets 10,215 10,743
Property, plant, and equipment, net 1,023 1,418
-------- --------
Total Assets $ 11,238 $ 12,161
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 6,463 $ 6,132
Bank loans and overdraft facilities 3,532 3,755
Income and other taxes payable 163 141
Other current liabilities 123 124
-------- --------
Total Current Liabilities 10,281 10,152
Commitments and contingencies
Stockholders' Equity
Common Stock ($38.17 par value, 6,000 shares authorized,
issued and outstanding at December 31, 2000 and 2001) 229 229
Retained earnings 775 1,780
Accumulated other comprehensive loss (47) -
-------- --------
Total Stockholders' Equity 957 2,009
-------- --------
Total Liabilities and Stockholders' Equity $ 11,238 $ 12,161
======== ========
See accompanying notes.
4
AGIS S.A.
STATEMENTS OF INCOME
(Monetary amounts in columns expressed in thousands)
Year ended December 31,
-----------------------
2000 2001
----------- -----------
Net sales $ 49,795 $ 75,449
Cost of goods sold, excluding depreciation 45,849 69,649
----------- -----------
3,946 5,800
Selling, general and administrative expenses, excluding depreciation 2,270 2,703
Bad debt expense 115 106
Depreciation of tangible fixed assets 155 165
----------- -----------
Operating income 1,406 2,826
Non-operating income (expense)
Interest expense (421) (665)
Interest income 4 12
Other income (expenses), net 14 (26)
----------- -----------
Income before income taxes 1,003 2,147
Income tax expense (362) (650)
----------- -----------
Net income $ 641 $ 1,497
=========== ===========
See accompanying notes.
5
AGIS S.A.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Monetary amounts in columns expressed in thousands)
Common Retained Accumulated Total
Stock Earnings other
comprehensive
income/(loss)
----------------------- ----------- --------------- -------------
No. of Amount
shares
---------- ---------
Balance at December 31,
1999 6,000 $ 229 $ 272 $ 7 $ 508
Net income 641 - 641
Foreign currency
translation adjustment
(net of tax) (54) (54)
---------
Comprehensive income - - 587
Dividend declared and paid - - (138) - (138)
------- -------- -------- -------- ---------
Balance at December 31,
2000 6,000 229 775 (47) 957
Net income - - 1,497 - 1,497
Foreign currency
translation adjustment
(net of tax) 47 47
---------
Comprehensive income - - 1,544
Dividend declared and paid - - (492) - (492)
------- -------- -------- --------- ---------
Balance at December 31,
2001 6,000 $ 229 $ 1,780 $ - $ 2,009
======= ======== ======== ========= =========
See accompanying notes.
6
AGIS S.A.
STATEMENTS OF CASH FLOWS
(Amounts in columns expressed in thousands)
Year ended December 31,
-----------------------
2000 2001
-------- --------
Operating Activities
Net income $ 641 $ 1,497
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 155 165
Bad debt provision 115 106
Deferred income tax benefit (14) (11)
Gain on disposal of fixed assets (10) (4)
Changes in operating assets and liabilities:
Accounts receivable (1,845) 176
Inventories (386) (184)
Prepayments and other current assets (3) (11)
Value added tax receivable - (911)
Trade accounts payable 69 (331)
Income and other taxes payable 38 (22)
Other liabilities (68) 52
-------- --------
Net Cash Provided by (Used in) Operating Activities (1,308) 522
Investing Activities
Purchase of property and equipment (234) (564)
Proceeds from sale of equipment 31 4
-------- --------
Net Cash Used in Investing Activities (203) (560)
Financing Activities
Proceeds from short-term borrowings 3,367 3,755
Repayment of short-term borrowings (1,656) (3,532)
Dividends paid (138) (492)
-------- --------
Net Cash Provided by (Used in) Financing Activities 1,573 (269)
-------- --------
Net Increase (Decrease) in cash and cash equivalents 62 (307)
Cash and cash equivalents at beginning of period 589 651
-------- --------
Cash and cash equivalents at end of period $ 651 $ 344
======== ========
Supplement cash flow information:
Interest paid $ 421 $ 665
Income taxes paid $ 289 $ 678
See accompanying notes.
7
AGIS S.A.
NOTES TO FINANCIAL STATEMENTS
(amounts in columns expressed in thousands of USD)
1. Organization and Description of Business
The business AGIS S.A. was originally organized as a Polish limited liability
company during 1990 and on December 15, 1995 was transformed into a Polish joint
stock company - AGIS S.A. (the "Company"). The Company's main activities are the
wholesale of alcoholic (mainly vodka) beverages. The Company has approximately
200 employees and 14 branch offices, which are located throughout
northern-central Poland. The Company's headquarters are located in Torun, Poland
and all of the Company's operations are conducted within the boundaries of
Poland.
Pursuant to Polish statutory requirements, AGIS S.A. may pay annual dividends,
based on its audited Polish statutory financial statements, to the extent of its
retained earnings as defined. At December 31, 2001, substantially all retained
earnings were available for payment of dividends see Note 8.
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 (PLN).
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 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 4.14
PLN and 3.98 PLN, respectively. The exchange rate as of April 24, 2002 was 4.04
PLN.
8
AGIS S.A.
NOTES TO FINANCIAL STATEMENTS
(amounts in columns expressed in thousands of USD)
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 3-10
Transportation Equipment 2-5
Other 2-10
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
adjustment has 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 of spirits 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 currency translation gains and losses on
the translation from Polish zloties to US dollars are classified as a separate
component of stockholders' equity as "accumulated other comprehensive loss".
During the period ended December 31, 2001, the Company incurred foreign currency
translation gains of $47,000 (net of tax). The total of the accumulated other
comprehensive loss consists of currency translation adjustments ($8,000 net
loss, net of taxes) and hyper-inflation adjustments related to assets purchased
prior to January 1, 1998 ($8,000 net gain, net of taxes).
9
AGIS S.A.
NOTES TO FINANCIAL STATEMENTS
(amounts in columns expressed in thousands of USD)
Recently issued accounting pronouncements
In June 2001, the Financial Accounting Standard 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 its 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 its 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
Buildings $ 12 $ 29
Machinery and equipment 638 901
Transportation equipment 121 156
Other 565 777
147 170
---------------- ---------------
1,483 2,033
Less accumulated depreciation 460 615
---------------- ---------------
Property, plant and equipment, net $ 1,023 $ 1,418
================ ===============
10
AGIS S.A.
NOTES TO FINANCIAL STATEMENTS
(amounts in columns expressed in thousands of USD)
4. Allowances for Doubtful Accounts
Changes in the allowance for doubtful accounts were as follows:
Year ended December, 31
-----------------------
2000 2001
---------------- ---------------
Balance, beginning of year $283 $398
Provision for doubtful accounts 115 106
-----------------------------------
Balance, end of year $398 $504
===================================
5. Short-term bank loan and overdraft facilities
During 2000, the Company had three overdraft facilities as follows: PLN
2,000,000 overdraft facility (secured by bills of exchange and cession rights to
receivables, with an interest rate of 3 months WIBOR plus 1.4%); PLN 4,000,000
overdraft facility which was secured similarly. The interest rate applied was 1
month WIBOR plus 0.6%, and a PLN 12,000,000 overdraft facility which was secured
with bills of exchange, cession rights to receivables and inventory amounting to
PLN 7,000,000, ($1,700,000). Outstanding amounts at December 31, 2000 were as
follows:
Polish Zloty (PLN) 2,000,000 (US$ 482,000) $ 387
Polish Zloty (PLN) 4,000,000 (US$ 965,000) 483
Polish Zloty (PLN) 12,000,000 (US$ 2,896,000) 2,662
------------
Total $ 3,532
============
During 2001, all the outstanding overdraft facilities as of December 31, 2000
were repaid. New overdraft facilities were acquired as follows: PLN 2,000,000
overdraft facility secured by bills of exchange and cession rights to
receivables, bearing an interest rate of 3 month WIBOR plus 0.9%; PLN 16,000,000
overdraft facility secured by bills of exchange and cession rights to
receivables, bearing interest rate of 1 month WIBOR plus 0.6%; PLN 500,000
overdraft facility which was secured with bills of exchange and the Company's
inventory. The interest rate was 1 month WIBOR plus 1%. Outstanding amounts at
December 31, 2001 were as follows:
Polish Zloty (PLN) 2,000,000 (US$ 501,700) $ 376
Polish Zloty (PLN) 16,000,000 (US$ 4,013,700) 3,358
Polish Zloty (PLN) 500,000 (US$ 125,400) 21
------------
Total $ 3,755
============
The weighted average interest rate on short-term borrowings at December 31, 2001
and 2000 was approximately 18.51%, and 22.45% respectively.
11
AGIS S.A.
NOTES TO FINANCIAL STATEMENTS
(amounts in columns expressed in thousands of USD)
6. Income Taxes
Income tax expense for the years ended December 31, 2000 and 2001, is summarized
below:
Year ended December 31,
-----------------------
2000 2001
------------ -----------
Current Polish income tax expense $ 376 $ 661
Deferred Polish tax benefit, net (14) (11)
------------ -----------
Income tax expense $ 362 $ 650
============ ===========
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 $ 301 $ 601
Increase in deferred tax asset valuation allowance relating primarily to
bad debt expense 14 21
Permanent differences between financial and taxable income 47 28
------------ -----------
Income tax expense $ 362 $ 650
============ ===========
Significant components of the Company's deferred tax assets are as follows:
December 31,
------------
2000 2001
------------ -----------
Deferred tax assets:
Allowance for doubtful accounts receivable $ 111 $ 141
Accrued expenses, deferred income and prepaids, net 4 6
------------ -----------
115 147
Less valuation allowance (78) (99)
------------ -----------
Net deferred tax asset $ 37 $ 48
============ ===========
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 solely to the estimated future tax deductibility of the allowance for
bad debts which may not be deductible under local statutes.
In November 1999, legislation was enacted which reduced the corporate income tax
rates in Poland effective January 1, 2000 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.
12
AGIS S.A.
NOTES TO FINANCIAL STATEMENTS
(amounts in columns expressed in thousands of USD)
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.
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 10 percent of outstanding receivables.
The Company has not experienced large credit losses in the past.
Supply contracts
The Company has various agreements covering its souces 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 $1000 to $2000. 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 $ 169 $ 155
========= =========
8. Subsequent Events
On April 24, 2002, the shareholders of the Company sold all 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 $4,568,000 of cash and 172,676 unregistered newly
issued common shares of CEDC, with a six month restriction on sale.
In contemplation of the sale of the Company, all the real estate owned by the
Company was sold to the former shareholders for a price of $1,001,923. The
Company also sold other assets to the former shareholders (two vehicles).
Prior to the sale of the Company, a cash dividend of $ 1,412,415 million was
declared. The dividend is to be paid over two equal installments starting on May
31, 2002.
13
Pro Forma Financial Statements
Central European Distribution Corporation
Pro Forma Combined Condensed Financial Information
The unaudited pro forma condensed combined balance sheet information set for
below for Central European Distribution (CEDC), AGIS S.A. (purchased on April
24, 2002) and Damianex S.A. (purchased on April 22, 2002) is presented as if
these acquisitions had been completed on December 31, 2001. The unaudited
condensed combined income statement for 2001 assumes the acquisitions were
completed on January 1, 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 acquisitions of Damianex S.A. and AGIS
S.A. as purchases in accordance with SFAS 141. Pro forma financial information
for CEDC and Damianex S.A. as of December 31, 2001 has been included in an 8K
report filed previously with the Securities and Exchange Commission.
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, and
its first quarter 2002 Report on Form 10Q and the historical financial
statements of Damaniex S.A. included in the Form 8-K which are on file with the
Securities and Exchange Commission and the historical financial statements of
AGIS 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 companies. The pro
forma adjustments do not include any adjustments to the historical operating
data for future changes in selling prices, or operating efficiencies which may
arise.
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 on August 31, 2002 (applicable to the Damianex
acquisition), upon final adjustments of the AGIS S.A. purchase price related to
old AGIS accounts receivable and upon receipt of independent valuations for both
acquisitions. Accordingly, the purchase accounting adjustment(s) 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 acquisitions 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.
14
Central European Distribution Corporation
Unaudited Pro Forma Condensed Combined Balance Sheet Information
December 31, 2001
Amounts in columns expressed in thousands of USD
Total
Damianex AGIS S.A, Pro Forma
Historical Historical Historical S.A. Pro Forma CEDC with
CEDC Damianex AGIS S.A. Pro Forma Adjust- AGIS S.A.
(A1) S.A. (A2) Adjustments ments and
(A3) DAMIANEX
S.A.
--------------- ------------------------------------------------------ --------------
ASSETS
Current Assets
Cash and cash equivalents $ 2,466 $ 2,327 $ 344 D 2,500 D 1,800 4,695
D 4,638 D 2,768
D 137 B1 (4,830)
B2 (7,455)
Accounts receivable, net 38,102 6,964 6,873 51,939
Due to selling shareholders - - - I 869 869
Inventories 9,001 4,356 2,536 15,893
Value added tax receivable - - 911 911
Deferred income taxes and
other current assets 2,040 73 79 C2 318 2,510
------------- ----------------------------------------------------- --------
51,609 13,720 10,743 138 607 76,817
Property, plant and
equipment, net 3,372 1,550 1,418 C2 368 I (719) 5,989
Intangible assets, net 3,002 - - 3,002
Goodwill, net 9,969 - - C2 5,664 C1 6,505
I (108) 22,030
Deferred income taxes and
other assets 1,025 172 - I (42) 1,155
-------- -------------------------------------------------- --------
Total Assets $ 68,977 $ 15,442 $ 12,161 $ 6,170 $ 6,243 $108,993
======== ================================================== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Trade accounts payable $ 29,685 $ 3,346 $ 6,132 C2 740 C1 1,412 41,315
Bank loans and overdraft
facilities 9,861 8,012 3,755 21,628
Income and other taxes payable 1,307 308 141 1,756
Other accrued liabilities 1,692 205 124 C1 131 2,152
Current portion of debt and
capital leases 2,181 - - 2,181
-------- -------------------------------------------------- --------
44,726 11,871 10,152 740 1,543 69,032
Non-current deferred taxes - - - C2 92 92
Long-term portion of debt and -
capital leases 3,495 - D 2,500 D 1,800 7,795
Temporary equity - - B2 1,634 1,634
Stockholders' Equity
Common stock E (1,739) D (229)
46 1,739 229 D 8 B1 2 56
Additional paid-in-capital 15,383 - - D 4,767 D 2,139 25,057
D 2,768
Retained earnings 7,161 1,727 1,780 E (1,727) E (1,780) 7,161
Accumulated other
comprehensive income (loss) (1,684) 105 - E (105) (1,684)
15
Central European Distribution Corporation
Unaudited Pro Forma Condensed Combined Balance Sheet Information
December 31, 2001
Amounts in columns expressed in thousands of USD
(150) - - - (150)
Less Treasury shares
-------- ----------------------------------------------------- --------
20,756 3,571 2,009 1,204 2,900 30,440
-------- ----------------------------------------------------- --------
Total Liabilities and
Stockholders' Equity $ 68,977 $ 15,442 $ 12,161 $ 6,170 $ 6,243 $108,993
======== ===================================================== ========
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 Historical Historical DAMIANEX AGIS S.A. CEDC with
CEDC Damianex AGIS S.A (A2) S.A. Pro Forma AGIS S.A.
(A1) S.A (A3) Pro Forma Adjustments and DAMIANEX
Adjustments S.A.
-------------- ----------- -----------------------------------------------------------------
Net sales $ 178,236 $78,977 $75,449 $332,662
Cost of goods sold, excluding
depreciation and amortization 154,622 70,262 69,649 294,533
------------- ---------- ---------------------------------------------- -----------
23,614 8,715 5,800 38,129
Selling, general and
administrative expenses, 16,445 6,008 2,703 F (41) 25,331
excluding depreciation F1 216
Bad debt expense 711 218 106 1,035
Depreciation of tangible fixed
assets 841 258 165 F2 10 F1 (16) 1,258
Amortization of intangible
assets 762 - - 762
------------- ---------- ---------------------------------------------- -----------
Operating income 4,855 2,231 2,826 (10) (159) 9,743
Non-operating income (expense)
Interest expense (1,345) (555) (665) D (106) D (77) (2,748)
Other income (expense), net 148 55 (14) - 189
------------- ---------- ---------------------------------------------- -----------
Income before income taxes 3,658 1,731 2,147 (116) (236) 7,184
Income tax (expense) benefit (1,132) (520) (650) G 33 G 66 (2,203)
------------- ---------- ---------------------------------------------- -----------
Net income $ 2,526 $ 1,211 $ 1,497 $ (83) $ (170) $ 4,981
============= ========== ============================================== ===========
Net income per share of common
stock, basic $ 0.58 $ 0.90
============= ===========
Net income per share of common
stock, diluted $ 0.57 $ 0.90
============= ===========
17
Central European Distribution Corporation
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
(Amounts in columns expressed in thousands of USD)
A. THESE COLUMNS REPESENT THE HISTORICAL BALANCE SHEETS AND RESULTS OF
OPERATIONS AS FOLLOWS:
(1)-CEDC - consolidated financial position and operating results as
of and for the year end December 31, 2001
(2)-AGIS S.A. - historical financial position and operating results as
of and for the year ended December 31, 2001
(3)-Damianex S.A. - historical financial position and operating results as
of and for the year ended December 31, 2001
B. ACQUISTIONS
(1). AGIS S.A.
On April 24, 2002, the CEDC group purchased the outstanding shares of AGIS
S.A. Total consideration for the acquisition consisted of the following:
Cash consideration to stockholders $ 4,568
*172,676 shares of CEDC common stock 2,141
Acquisition costs (estimated) 262
---------
$ 6,971
=========
* CEDC's common stock was valued at the average stock price a few days
before and after the purchase intent was announced and the agreement terms
were finalized. The shares issued are not registered and may not be sold
without the consent of CEDC for six months subsequent to the acquisition
date.
18
Central European Distribution Corporation
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
(Amounts in columns expressed in thousands of USD)
(2). DAMIANEX S.A.
On April 22, 2002, the CEDC group 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 date.
The sellers were granted an option to sell the acquired CEDC stock ("Put
Option") back to the Company at a price of $12.00 per share during the
period from April 23, 2003 to April 29, 2003. The discount between the value
of CEDC's stock and the option price 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 combined 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 they are
anti-dilutive).
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 escrowed amount.
19
Central European Distribution Corporation
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
(Amounts in columns expressed in thousands of USD)
C. DETERMINATION OF GOODWILL
(1) AGIS S.A.
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:
Cost of acquisition $6,971
Historical net book value at December 31, 2001 *597
**Other current liabilities (131)
---------
$6,505
***(108)
---------
Preliminary goodwill $6,397
=========
* Assuming the AGIS acquisition was finalized on December 31, 2001, the
historical net book of $2,009,000 has been reduced to reflect a dividend
declared in April 2002 in regards to prior year earnings for the amount of
approximately $1,412,000.
**Assuming the acquisition was finalized on December 31, 2001, the goodwill
was adjusted to reflect the estimated acquired goodwill determined as of
April 24, 2002.
*** This amount relates to the elimination of deferred income (net of tax)
in regards to the sale of real estate as described in Note I. The $108,000
deferred gain would never be recognized in the consolidated financial
statements of CEDC as it was pre-acquisition.
Prior to the finalization of the business combination agreement all the real
estate (land and buildings) and certain vehicles were sold to the former
shareholders, see Note I. CEDC believes fair market value of the remaining
assets is equal to their carrying values, this will be confirmed upon
finalization of the appraisal of business combination assets.
(2) DAMIANEX S.A.
The book values of certain assets of the Damianex S.A. acquisition were
adjusted to estimated fair values as follows (assuming the Polish Government
approves the real estate element of the transaction):
Cost of acquisition $ 9,089
Historical net book value 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 Damianex acquisition was finalized on December 31, 2001, the
historical net book has been reduced to reflect a dividend declared in April
2002 in the amount of $740,000.
** Assuming the acquisition was finalized on December 31, 2001, the goodwill
was adjusted to reflect the estimated acquired goodwill determined as of
April 22, 2002.
*** Assuming the Polish Government approves the real estate element of the
transaction.
20
Central European Distribution Corporation
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
Amounts in columns expressed in thousands of USD
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 the independent valuations in regards to the acquisitions (Damianex
S.A. and AGIS S.A.) of the tangible and intangible business assets acquired
and upon completion of the escrow period for the Damianex S.A. acquisition
and final determination of the purchase price for AGIS for the effects of
old accounts receivable. CEDC does not expect material adjustments from the
completion of this process.
D. FINANCING OF ACQUISITIONS
The Company secured additional long-term borrowings of approximately
$4,300,000 to finance the acquisitions. The interest rate on the additional
borrowings is LIBOR plus 2%. The average LIBOR plus 2% rate for 2001 was
approximately 4.25%. The Company allocated $1,800,000 and $2,500,000 of
additional borrowing for the purchases of AGIS S.A. and Damianex S.A.,
respectively. The additional interest expense for AGIS S.A. in regards to
the pro forma condensed combined income statement information is
approximately $77,000 for the year end December 31, 2001. The additional
interest expense for Damianex S.A. in regards to the pro forma condensed
combined income statement information is approximately $106,000 for the year
ended December 31, 2001.
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
$7,543,000 from this private placement, of which $7,543,000 was used as
follows:
Acquisition of Damaniex S.A. $4,638
Acquisition of AGIS S.A. 2,768
Other 137
---------
$7,543
=========
For convenience, the pro forma adjustments in regards to the common stock
par value $8,000 and other costs of $137,000 related to the private
placement offering have been included in the pro forma column for the
Damianex acquisition.
E. ELIMINATION OF ACQUIRED COMPANIES SHAREHOLDERS' EQUITY ACCOUNTS
AGIS S.A. Damianex S.A.
December 31, 2001 December 31, 2001
--------------------- --------------------
Common Stock $ 229 $1,739
Retained earnings 1,780 1,727
Accumulated other comprehensive loss, (net of tax) - 105
--------------------- --------------------
$ 2,009 $3,571
===================== ====================
21
Central European Distribution Corporation
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
Amounts in columns expressed in thousands of USD (except per share data)
F. PROFORMA EXPENSE ADJUSTMENTS
(1). CEDC did not acquire any of the AGIS buildings. As a result CEDC
entered into lease agreements with the former shareholders of AGIS to lease
the buildings for an unspecified period. This pro forma entry reflects the
elimination with respect to the depreciation of the buildings and the
addition of rent expense on the lease referred to above. Depreciation in the
amount of $16,000 has been reduced for the year ended December 31, 2001.
Rent expense of $216,000 has been recognized for the year ended December 31,
2001.
Additionally, real estate taxes and maintenance costs applicable to the
buildings were eliminated, the expenses eliminated were $41,000 for the year
ended December 31, 2001.
(2). Damianex S.A. - The increase in the fair market values of the acquired
buildings subsequently increased the depreciation expense for the year ended
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. PRO FORMA INCOME TAX ADJUSTMENTS
AGIS S.A. Damianex S.A.
Year ended December 31, Year ended December 31,
2001 2001
----------------------- -----------------------
Interest expense $ 77 $ 106
Rent expense 216 -
Real estate tax and repairs and maintenance (41) -
Depreciation (16) 10
----------------------- -----------------------
Additional tax deductible expenditures 236 116
Tax rate for period 28% 28%
----------------------- -----------------------
Total pro forma tax expense $ 66 $ 33
======================= =======================
Goodwill is not tax deductible.
H. PERSONNEL REDUCTIONS
CEDC's management does not presently anticipate any significant personnel
reductions as a result of the acquisitions.
I. SALE OF REAL ESTATE
As part of the AGIS purchase agreement, all the real estate in the Company
was sold to the former shareholders. The amount received in excess of the
carrying value of the real estate of $150,000 (net of tax) was recorded as
a reduction of the purchase price.
22
Central European Distribution Corporation
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
Amounts in columns expressed in thousands of USD (except per share data)
J. PRO FORMA NET INCOME PER SHARE INFORMATION
Pro forma net income per share information considers the effects of shares
issued in connection with the transaction as though they were outstanding
during the periods presented. The shares used for these calculations were as
follows:
Year end
December 31, 2001
-------------------------
Historical Pro forma
---------- ---------
Basic 4,359 *5,332
Dilutive 4,447 **5,420
* Includes the following:
800,000 common shares issued in regards to the private placement offering
172,676 common shares issued in regards to the AGIS acquisition
** The pro forma diluted earnings per share are calculated using the pro forma
shares indicated 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 the Damianex acquisition. The result of this
is anti-dilutive.
As discussed in Note B2, 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 for the
year ended December 31, 2001, net income disclosed in the pro forma condensed
combined income statement has been reduced by full accretion of the discount of
$202,000, resulting in earnings available to common stockholders of $4,779,000.
This amount is divided by the pro forma basic and diluted shares shown above to
arrive at pro forma earnings per share for the year ended December 31, 2001.
23
(c) List of Exhibits
2.2. Shares Purchase Agreement for Agis dated April 24, 2002
23 Consent of Ernst & Young Audit Sp. z o.o.
24
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)
/s/ James Archbold
June 3, 2002 James Archbold
Vice President and Corporate Secretary
25