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ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended
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Mar. 31, 2013
Organization and description of business | Organization and description of business Central European Distribution Corporation (“CEDC”), a Delaware corporation incorporated on September 4, 1997, and its subsidiaries (collectively referred to as “we,” “us,” “our,” or the “Company”) operate primarily in the alcohol beverage industry. We are one of the largest producers of vodka in the world and are Central and Eastern Europe’s largest integrated spirit beverages business, measured by total volume, with approximately 29.9 million nine-liter cases produced and distributed in 2012. Our business primarily involves the production and sale of our own spirit brands (principally vodka), and the importation on an exclusive basis of a wide variety of spirits, wines and beers. Our primary operations are conducted in Poland, Russia, Ukraine and Hungary. We have six operational manufacturing facilities located in Poland and Russia. In Poland, we are one of the largest vodka producers with a brand portfolio that includes Absolwent, Żubrówka, Żubrówka Biała, Bols, Palace and Soplica brands, each of which we produce at our Polish distilleries. We produce and sell vodkas primarily in three of four vodka sectors: premium, mainstream and economy. In Poland, we also own and produce Royal, the top-selling vodka in Hungary. We are also the largest vodka producer in Russia, the world’s largest vodka market. Our Green Mark brand is the top-selling mainstream vodka in Russia and the second-largest vodka brand by volume in the world, and our Parliament and Zhuravli brands are two top-selling sub-premium vodkas in Russia. As well as sales and distribution of its own branded spirits, the Company is a leading exclusive importer of wines and spirits in Poland, Russia and Hungary.
Liquidity | Liquidity These condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As discussed in the Annual Report on Form 10-K for the year ended December 31, 2012 filed on June 18, 2013 with the U.S. Securities and Exchange Commission (the “SEC”), on March 15, 2013, the Company failed to pay $257.9 million principal due on the 2013 Convertible Senior Notes (the “CSN”). The CSN were governed by an Indenture (the “CSN Indenture”) dated March 7, 2008 between the Company and The Bank of New York, as Trustee, as amended and supplemented by the first Supplemental Indenture dated March 7, 2008. Under the terms of the CSN Indenture, the failure to pay principal when due constituted an Event of Default. Under the Indenture (the “SSN Indenture”) governing CEDC Finance Corporation International Inc.’s 2016 Senior Secured Notes (the “SSN”), the failure to pay principal when due on the CSN constituted an Event of Default under the SSN Indenture. As described in Note 4 “Borrowings”, on March 18, 2013, the Company failed to pay $20.0 million due under the $20 million principal amount of Notes issued by CEDC to RTL (the “RTL Notes”). Following the effectiveness of the Plan of Reorganization, as described in the Annual Report on Form 10-K for the year ended December 31, 2012, all amounts due by the Company under the CSN, the SSN, the RTL Notes and also $50.0 million of secured credit facility provided by RTL to CEDC pursuant to facility agreement dated March 1, 2013 (the “RTL Credit Facility”) were cancelled and are no longer outstanding. The Company issued new debt instruments in connection with the Plan, comprising (i) $465 million principal amount of new Senior Secured Notes due 2018 and (ii) $200 million principal amount of Junior Secured Notes due 2018. Chapter 11 Filing On April 7, 2013, the Company and its two wholly owned subsidiaries, CEDC Finance Corporation International Inc. and CEDC Finance Corporation LLC (the “Debtors”) filed Chapter 11 Cases under the Bankruptcy Code in the Bankruptcy Court in Delaware in order to effectuate the Debtors’ prepackaged Plan of Reorganization. The Chapter 11 Cases were jointly administered under the caption “In re: Central European Distribution Corporation, et al.” Case No. 13-10738. The Plan of Reorganization was confirmed by the Bankruptcy Court on May 13, 2013. The Effective Date of the Plan was June 5, 2013. The Company believes that this successful restructuring improved its financial strength and flexibility and will enable it to focus on maximizing the value of its strong brands and market position. The Chapter 11 Cases and the Plan of Reorganization which were approved by the Bankruptcy Court, eliminated approximately $665.2 million in debt from the Company’s balance sheet. The Plan of Reorganization did not involve the Company’s operating subsidiaries in Poland, Russia, Ukraine or Hungary and had no impact on their business operations. Operations in these countries are independently funded and continued to generate revenue during this process. Under the Plan of Reorganization, obligations to employees, vendors, credit support providers and government authorities were not affected and were honored in the ordinary course without interruption. Background to Chapter 11 Filing Prior to filing, the Chapter 11 cases the management of the Company, in consultation with the Board of Directors and with the assistance of financial and legal advisors, reviewed the Company’s alternatives in light of its financial obligations, in particular the CSN. The Board and the management of the Company evaluated various alternatives and the Company and its advisors worked to further develop those alternatives to address the maturity of the CSN, including a strategic alliance with Mr. Roustam Tariko other possible strategic investments, the sale of certain assets and an exchange the CSN. Following this work and in light of the impending maturity of the CSN, on February 25, 2013, the Company launched (i) exchange offers in respect of its CSN and the SSN, (ii) a solicitation of consents to amendments to the SSN Indenture, and (iii) a solicitation of votes on a pre-packaged Chapter 11 Plan of Reorganization relating to the CSN and the SSN. These transactions were launched by the Company to begin a process of consensual restructuring of the Company’s obligations with the participation of Roust Trading Limited (“RTL”), an entity controlled by Mr. Roustam Tariko, the 2016 Steering Committee and the 2013 Steering Committee; however none of RTL, the 2016 Steering Committee or the 2013 Steering Committee supported these transactions as launched by the Company. Following the launch of these transactions on February 25, 2013, these stakeholders continued to negotiate the terms of a mutually agreeable restructuring of the Company’s obligations. On March 11, 2013, the Company announced amended terms to these exchange offers, consent and vote solicitations to reflect terms agreed to and supported by the Company, RTL and the 2016 Steering Committee (the “Plan of Reorganization”). Thereafter, on March 19, 2013, the Company announced the termination of its exchange offer in respect of the CSN and continued to solicit votes from the holders of the CSN and the SSN on the Plan of Reorganization on the amended terms. After extensive discussion with representatives of RTL, the 2016 Steering Committee and the 2013 Steering Committee and deliberation regarding the Company’s alternatives, the Board resolved unanimously to support the Plan of Reorganization. Voting on the Plan of Reorganization closed on April 4, 2013. According to the official vote tabulation prepared by CEDC’s voting and information agent, impaired creditors voted overwhelmingly to accept the Plan of Reorganization. Specifically, approximately 95% of all CSN were voted. The Plan of Reorganization was accepted by 99.13% in number and 99.00% in amount of those CSN that were voted on the Plan of Reorganization. Approximately 95% of all SSN were voted, and of those, 97.26% in number and 97.34% in amount voted to accept the Plan of Reorganization. On April 7, 2013, CEDC announced that the Debtors had received overwhelming support from creditors for the Plan of Reorganization and the CEDC Board of Directors resolved to implement the exchange offers through the prepackaged Plan of Reorganization. Accordingly, the Company filed the Chapter 11 Cases in the Bankruptcy Court in order to effectuate the Plan of Reorganization. CEDC and CEDC Finance Corporation International, Inc. also announced the successful completion of the consent solicitation conducted with respect to the indenture governing the SSN, as the requisite consents were obtained to approve the amendments to covenants, and to release collateral and guarantees for the SSN. Approximately 95% of the SSN by principal amount voted to approve those waivers and amendments. Finally, CEDC and CEDC Finance Corporation International, Inc. announced the termination of the exchange offer for the SSN. The exchange offer failed to meet the minimum tender condition necessary for the consummation of the offer. On May 13, 2013, the Bankruptcy Court entered an order confirming the Plan. The Effective Date of the Plan was June 5, 2013. Description of the Plan of Reorganization The Plan of Reorganization included the following:
| • |  | RTL made a $172.0 million cash investment and exchanged the $50.0 million RTL Credit Facility for new shares of common stock of the Company, with the proceeds of $172.0 million used to fund the cash consideration in the exchange offer for SSN described below;
| • |  | all SSN representing approximately $982.2 million, including interest, were exchanged for (i) New Secured Notes in aggregate principal amount equal to $465 million (ii) New Convertible Secured Notes in aggregate principal amount equal to $200.0 million and (iii) $172 million in cash;
| • |  | all CSN and the $20.0 million aggregate principal amount of RTL Notes were exchanged for their pro rata share (based upon the approximate $282.0 million sum of aggregate principal amount of CSN and the RTL Notes outstanding and accrued interest calculated through March 15, 2013) of $16.9 million in cash, which was also funded by RTL; and
| • |  | in exchange for the RTL Investment and funding the cash distribution to 2013 Noteholders, RTL and its affiliates received new shares of common stock of the Company representing 100% of reorganized CEDC. All of the Company’s shares of common stock outstanding prior to the Effective Date of the Plan were cancelled.
In addition, RTL made an offer (i) outside the United States in “offshore transactions” in compliance with Regulation S under the Securities Act of 1933; and (ii) to ”accredited investors” to exchange, subject to certain conditions, CSN not held by RTL in exchange for an aggregate of $25.0 million in cash (the “Cash Payment”) and securities offered by RTL (the “RTL Offer Notes”). Each accepting holder assigned to RTL all of its rights under such CSN, including the right to its distribution under the Plan of Reorganization included in the amended terms. Holders of CSN that did not participate in the RTL Offer received their proportionate share of $16.9 million in cash under the Plan of Reorganization (shared with the RTL Notes). Holders of CSN that participated in the RTL Offer did not receive a distribution from CEDC or its U.S. subsidiaries under the Plan of Reorganization.
Basis of presentation | Basis of presentation These unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). CEDC’s subsidiaries maintain their books of account and prepare their statutory financial statements in their respective local currencies. The subsidiaries’ financial statements have been adjusted to reflect U.S. GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present our financial condition, results of operations and comprehensive income and cash flows for the interim periods presented have been included. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013. The balance sheet at December 31, 2012 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on June 18, 2013. In interim periods, costs and expenses other than product costs are charged to income as incurred, or are allocated among interim periods based on an estimate of time expired, benefit received or activity associated with the periods. Income taxes are recognized using an estimated annual effective tax rate adjusted for tax amendments related to prior years and changes in estimates.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References No definition available. + Details
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- Definition Disclosure of accounting policy for reporting when there is a substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time (generally a year from the balance sheet date). Disclose: (a) pertinent conditions and events giving rise to the assessment of substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time, (b) the possible effects of such conditions and events, (c) management's evaluation of the significance of those conditions and events and any mitigating factors, (d) possible discontinuance of operations, (e) management's plans (including relevant prospective financial information), and (f) information about the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities. If management's plans alleviate the substantial doubt about the entity's ability to continue as a going concern, disclosure of the principal conditions and events that initially raised the substantial doubt about the entity's ability to continue as a going concern would be expected to be considered. Disclose whether operations for the current or prior years generated sufficient cash to cover current obligations, whether waivers were obtained from creditors relating to the company's default under the provisions of debt agreements and possible effects of such conditions and events, such as: whether there is a possible need to obtain additional financing (debt or equity) or to liquidate certain holdings to offset future cash flow deficiencies. Disclose appropriate parent company information when parent is dependent upon remittances from subsidiaries to satisfy its obligations. + References No definition available. + Details
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- Definition The entire disclosure for the general note to the financial statements for the reporting entity which may include, descriptions of the basis of presentation, business description, significant accounting policies, consolidations, reclassifications, new pronouncements not yet adopted and changes in accounting principles. + References No definition available. + Details
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