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  • REPORT TO BONDHOLDERS THIS FORM WAS NOT FILED WITH SECURITIES AND EXCHANGE COMMISSION

    SECURITIES AND EXCHANGE COMMISSION

    WASHINGTON, D.C. 20549

    FORM 10-K

    ANNUAL REPORT

    FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015

    ROUST CORPORATION

    (EXACT NAME OF THE COMPANY AS SPECIFIED IN ITS CHARTER)

    Delaware

    (State or Other Jurisdiction of Incorporation or Organization)

    54-1865271

    (I.R.S. Employer Identification No.)

    2711 Centerville Road, Suite 400 Wilmington

    New Castle County, Delaware

    (Address of Principal Executive Offices)

    19808

    (Zip code)

    (302) 636-5401

    (Telephone Number, Including Area Code)

    The number of shares outstanding of each class of the issuers common stock as of December 31, 2015: Common Stock ($0.01 par value) 10,000.

  • ROUST CORPORATION ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2015

    All amounts are expressed in thousands of US dollars (except share and per share information)

    Page 1 of 132

    TABLE OF CONTENTS

    EXECUTIVE SUMMARY 2

    EXPLANATORY NOTE 7

    PART I 9

    Item 1. Business 9

    Item 1A. Risk Factors 22

    Item 2. Properties 30

    Item 3. Legal Proceedings 31

    Item 4. Mine Safety Disclosures 31

    PART II 32

    Item 5. Market for Registrants Common Equity and Related Stockholder Matters 32

    Item 6. Selected Financial Data 33

    Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations 35

    Item 7A. Quantitative and Qualitative Disclosure about Market Risk 71

    Item 8. Financial Statements and Supplementary Data 72

    Independent Auditors Report 73

    Independent Auditors Report 74

    Independent Auditors Report 75

    CONSOLIDATED BALANCE SHEETS 76

    CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS) 77

    CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY / (DEFICIT) 78

    CONSOLIDATED STATEMENTS OF CASH FLOW 79

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 80

    PART III 119

    Item 10. Directors, Executive Officers and Corporate Governance 119

    Item 11. Executive Compensation 122

    Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 127

    Item 13. Certain Relationships and Related Transactions 127

    Item 14. Principal Accounting Fees and Services 129

    PART IV 130

    Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 130

  • ROUST CORPORATION ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2015

    All amounts are expressed in thousands of US dollars (except share and per share information)

    Page 2 of 132

    EXECUTIVE SUMMARY

    Roust Corporations (previously Central European Distribution Corporation, collectively with its subsidiaries referred to as ROUST, we, us, our or the Company) objective is to be a leading global player in every major category of alcoholic beverages, including vodka, sparkling wines, still wines, brown spirits, liquors and ready-to-drink beverages, as well as in every price segment. We believe our brands are the most authentic in their categories, bringing affordable luxury to everyone.

    We have continued to make significant improvements to our business over the last 2 years:

    Business value growth Our operating income in 2015 amounted to $52.9 million. Our operating income margin amounted

    to 9.1% in 2015 compared to 9.0% in 2014. Our Underlying EBITDA1 in 2015 amounted to $89.1 million. Our Underlying EBITDA margin improved by 2.6 percentage points from 12.7% in 2014 to 15.3% in 2015. Despite the adverse economic conditions in Russia, we are still generating positive financial results and increasing market share for premium brands. We believe the conditions on the alcohol market have improved recently, and we believe that we shall not see any further significant increases in excise tax over the coming year in Russia. We believe that lack of increases is also highly likely in Poland. In addition, the Russian government is currently combating rampant illegal and counterfeit production of alcoholic beverage products, which is a direct result of the large hikes in excise tax from 2012 to 2014. These long-overdue official efforts will benefit alcohol producers, such as ROUST.

    Market leadership in Poland We are increasing our market leadership on the Polish vodka market, with our market share by volume achieving 40.3% in February 2016. Our ubrwka Biaa vodka is now the best-selling brand of vodka in Poland

    and was described as the fastest growing brand among the top 50 alcohol brands worldwide. The market shares of our other brands, such as Soplica and ytniwka have also increased. Moreover, we became the market leader in the traditional trade channel in Poland in May and continued our leadership in the fourth quarter with a 39% market share (according to

    the November 2015 Nielsen data) and achieving 40% in February 2016.

    Russia has had great success with premium spirit brands, but mainstream vodka is under pressure: ROUST increased its leadership in the Russian premium vodka market with Russian Standard Vodka, is a leading premium brands importer, with an increasing whisky/cognac share, and is one of the leaders in the mainstream vodka market in Russia. However, low price illegal vodka sales have negatively affected our mainstream vodka volumes. Russia saw rapid growth of the Status Group company selling cheap (at a legal minimum price of 185 Russian ruble) vodka in the last six months. At this price ROUST would generate a negative margin. They do this through semi-legal excise rebates with the local authorities in several regions of Russia. Consequently, this cheap vodka segment has exploded in the last few months, leading to a sharp decline in mainstream vodka sales for the three leading manufacturers, including ROUST. This significantly affected our volume and EBITDA in Russia in the last six months. In March 2016, Status Group began experiencing government pressure in relation with their semi-legal schemes, and as a result ROUST is expecting an upside in the mainstream vodka segment in the second half of 2016.

    Successful global expansion Our successful global expansion continued in 2015:

    o We are now selling ubrwka in 40 countries and Green Mark in 30 countries and we are continuing to expand our global distribution. We have a well-developed distributor network in all Top 10 vodka countries globally, supported by our own ROUST employees. Together with our sister company, Russian Standard Vodka International, we now have a strong portfolio of vodka brands on international markets, which has allowed us to achieve growth, strong customer engagement, and economies of scale to enhance our profitability. Our International business (non-Russia/CIS) grew by more than 10% during the year. Global underlying profit increased during the year for the third year in a row.

    o Growth in shipments in 2015 was almost 500k nine-liter cases in Germany (+12% compared with last year, including Russian Standard Vodka), and over 100k nine-liter cases in France (5% growth on last year). We also grew in Italy,

    Bulgaria, Czech Republic, Lebanon, Austria, Canada and Japan in 2015.

    o The ROUST portfolios retail sales volume also increased by 13% in the UK up to the end of 2015 (Moving Annual Total, MAT). Green Marks volume increased by 19% in 2015 compared to last year, while ubrwkas volume increased by 41% in 2015 compared to last year (according to the available Nielsen retail sales data).

    o Many Commonwealth of Independent States (CIS) countries, including Kazakhstan, continued to decline due to market contractions and significant currency depreciation related to the Russian crisis. We proceeded with the implementation of a special action plan in 2015 to improve Kazakhstans shipments and depletions. The focus is on smart price differentiation, stock optimization, small pack development, portfolio optimization, the creation of an exclusive sales management team, as well as the development of numerical and weighted distribution. We see a potential for significant improvements in CIS markets in 2016.

    Our Ukrainian business suffered greatly At first retail and then government bans on Russian vodkas led to a decline in

    our business of 75.8% in volume terms compared to prior year. In 2016 we expect growth in our Ukrainian business as we focus on expansion of our Polish brands.

    Acquisition of a new business: Roust Distribution Limited On December 31, 2015, Pasalba Ltd. (Pasalba), a wholly-

    owned subsidiary of Roust Corporation, acquired all of the outstanding shares of Roust Distribution Limited (RDL) from Roust Trading Limited (RTL) in accordance with the Share Purchase Agreement, dated December 30, 2015, between Pasalba and RTL. ROUST, through the acquisition of RDL, aims to assume the international contracts and apply relevant

    1 For more information about Underlying EBITDA, which is a non-US GAAP financial measure, please see Item 7. Managements Discussion and Analysis of the Financial Condition and Results of Operations (MD&A).

  • ROUST CORPORATION ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2015

    All amounts are expressed in thousands of US dollars (except share and per share information)

    Page 3 of 132

    processes in order to efficiently organize international distribution of alcohol beverages within Roust Corporation Group. RTL is the sole shareholder of RDL and ROUST, therefore for accounting purposes, the acquisition was accounted for under the as if pooling-of-interest method of accounting which applies to the transfer of assets or exchange of equ

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