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CEDC Announces Restatement Of Second Quarter 2012 Results

Stocks in this article: CEDC

MT. LAUREL, N.J., Nov. 13, 2012 /PRNewswire/ -- Central European Distribution Corporation (NASDAQ: CEDC) announced today that it expects to restate its financial results for the three and six months ended June 30, 2012.  CEDC will restate these financial statements to correct an excess provision previously recorded to account for promotional compensation granted to one customer in a division of its main operating subsidiary in Russia, the Russian Alcohol Group ("RAG").  The excess provision resulted in an inadvertent understatement of the Company's accounts receivable.

CEDC estimates that the aggregate effect of the adjustments identified to date will result in an increase in accounts receivable as at June 30, 2012, and a decrease in selling, general and administrative expenses for the three and six months ended June 30, 2012, of approximately $6 million, resulting in an increase in net income for the three and six months ended June 30, 2012, of approximately $6 million, which amounts are subject to change as CEDC continues its review of the accounting matters discussed herein. These amounts reflect the fact that certain accounts receivable related to promotional compensation granted to customers of RAG that had been provisioned as doubtful accounts were ultimately recovered in the period and therefore the associated provisions are to be reversed. The adjustments are not expected to have any impact on previously reported net cash provided by operating activities reported in the cash flow statements during the period.

As previously disclosed, following an internal investigation led by the Audit Committee of CEDC's board of directors regarding CEDC's retroactive trade rebates, trade marketing expenses and related accounting issues, including the promotional compensation granted to customers of RAG, CEDC filed an amended annual report on Form 10-K/A for the year ended December 31, 2011, and amended quarterly reports on Form 10-Q/A for the three and nine months ending September 30, 2011 and the three months ending March 31, 2012, with the United States Securities and Exchange Commission (the "SEC"). In addition, CEDC filed a Form 10-Q for the three and six months ending June 30, 2012, that included restated financial statements as of and for the three and six months ending June 30, 2011. The adjustments to CEDC's unaudited condensed consolidated financial statements for the three and six months ended June 30, 2012, disclosed above represent a partial reversal of the selling, general and administrative expenses, and associated adjustments to the accounts receivable, reported in these restated financial statements.

Certain members of the board of directors and senior management of CEDC have discussed the matters described above with Ernst & Young Audit Sp. z.o.o., CEDC's current auditor. CEDC is currently targeting a date of November 19, 2012, for filing an amended quarterly report on Form 10-Q for the three and six months ended June 30, 2012 with the SEC to reflect the restated financial statements. There can be no assurance, however, that this filing will be made within the anticipated period.

While CEDC has begun restructuring its corporate finance and reporting department in Poland and Russia to implement more effective internal controls over financial reporting, management's evaluation of its internal control over financial reporting has disclosed material weaknesses still exist as noted in Management's Annual Report on and Changes in Internal Control over Financial Reporting located in Item 9A, Controls and Procedures, of CEDC's Form 10-K/A for the year ended December 31, 2011, filed with the SEC on October 5, 2012. CEDC is in the process of implementing the remediation steps listed in that Item 9A.

The expected effects of the restatement described above are based on currently available information. Because CEDC's accounting review is ongoing, the estimates included herein are subject to change until the final restated financial statements are filed with the SEC.

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