-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L7JjBoYCnI1lznczUYXx/zmzeWt8cSpPNH/NEnIw2XapCkGE3FFX791ijBVlZYkP 7/Oc/Hg1stFHrHOvaoQVFw== 0000928385-98-002262.txt : 19981113 0000928385-98-002262.hdr.sgml : 19981113 ACCESSION NUMBER: 0000928385-98-002262 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL EUROPEAN DISTRIBUTION CORP CENTRAL INDEX KEY: 0001046880 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-BEER, WINE & DISTILLED ALCOHOLIC BEVERAGES [5180] IRS NUMBER: 541865271 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24341 FILM NUMBER: 98744119 BUSINESS ADDRESS: STREET 1: 211 NORTH UNION STREET CITY: ALEXANDRIA STATE: VA ZIP: 22314 MAIL ADDRESS: STREET 1: 211 NORTH UNION STREET CITY: ALEXANDRIA STATE: VA ZIP: 22314 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1998 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ______________ to ________________ Commission file number 0-24341 CENTRAL EUROPEAN DISTRIBUTION CORPORATION (Exact name of registrant as specified in its charter) Delaware 54-18652710 (State of Incorporation) (IRS Employer Identification No.) 211 NORTH UNION STREET, #100 ALEXANDRIA, VIRGINIA 22314 (Address of principal executive office) (Zip Code) 703-838-5568 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] The number of shares outstanding of each class of the issuer's common stock as of September 30, 1998: Common Stock ($.01 par value).......................... 3,780,000 shares ================================================================================ INDEX
Page ---- PART I. FINANCIAL INFORMATION - ------- --------------------- Item 1. Financial Statements................................................................... 3 Consolidated Condensed Balance Sheets, September 30, 1998 (unaudited) and December 31, 1997................................................................ 3 Consolidated Condensed Statements of Income (unaudited) for the three and nine months ended September 30, 1998 and 1997............................................. 5 Consolidated Condensed Statements of Changes in Stockholders' Equity (unaudited)....... 6 Consolidated Condensed Statements of Cash Flows (unaudited) for the nine months ended September 30, 1998 and 1997.......................................................... 7 Notes to Consolidated Condensed Financial Statements (unaudited)....................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 11 PART II. OTHER INFORMATION - -------- ----------------- Item 2. Changes in Securities and Use of Proceeds.............................................. 14 Item 6. Exhibits and Reports on Form 8-K....................................................... 14 Signatures...................................................................................... 15
2 CENTRAL EUROPEAN DISTRIBUTION CORPORATION Amounts in columns expressed in thousands - -------------------------------------------------------------------------------- PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS.................................................... Central European Distribution Corporation CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARES)
December 31, September 30, 1997 1998 ------------ ------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,053 $ 3,504 Marketable securities - 1,442 Accounts receivable, net of allowance for doubtful accounts of $94,000 and $116,000, respectively 6,970 7,294 Inventories 3,280 3,548 Prepaid expenses and other current assets 235 251 Deferred income taxes 103 135 ------- ------- TOTAL CURRENT ASSETS 11,641 16,174 Equipment, net 503 803 Deferred charges 386 - ------- ------- TOTAL ASSETS $12,530 $16,977 ------- -------
See accompanying notes. 3 CENTRAL EUROPEAN DISTRIBUTION CORPORATION Amounts in columns expressed in thousands - -------------------------------------------------------------------------------- Consolidated Condensed Balance Sheets (unaudited) - continued
December 31, September 30, 1997 1998 ------------ ------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 9,790 $ 4,553 Bank loans and overdraft facilities 925 - Other current liabilities 1,085 877 Current portion of long-term debt and capital lease obligations 349 - ------- ------- TOTAL CURRENT LIABILITIES 12,149 5,430 Long term debt and capital lease obligations, less current portion 47 - STOCKHOLDERS' EQUITY Preferred stock ($0.01 par value, 1,000,000 shares authorized; no shares issued and outstanding) - - Common Stock ($0.01 par value, 20,000,000 shares authorized, 1,780,000 and 3,780,000 shares issued and outstanding at December 31, 1997 and September 18 38 30, 1998, respectively) Additional paid-in-capital 36 10,634 Retained earnings 280 1,140 Foreign currency translation adjustment - (265) ------- ------- TOTAL STOCKHOLDERS' EQUITY 334 11,547 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,530 $16,977 ------- -------
See accompanying notes. 4 CENTRAL EUROPEAN DISTRIBUTION CORPORATION Amounts in columns expressed in thousands (except per share data) - -------------------------------------------------------------------------------- Consolidated Condensed STATEMENTS OF INCOME (UNAUDITED)
Three months ended Nine months ended ---------------------------------------- -------------------------------------- September 30, September 30, September 30, September 30, 1997 1998 1997 1998 ------------------ ---------------- ---------------- ---------------- NET SALES $9,977 $12,968 $27,499 $34,861 Cost of goods sold 8,571 11,057 23,759 29,593 ------------------ ---------------- ---------------- ---------------- GROSS PROFIT 1,406 1,911 3,740 5,268 Sales, general and administrative expenses 1,148 1,507 3,057 3,913 ------------------ ---------------- ---------------- ---------------- OPERATING INCOME 258 404 683 1,355 Non-operating income (expense) Interest expense (25) (75) (106) (180) Interest income - 99 - 99 Realized and unrealized foreign currency transaction (losses) gains, net (65) 70 (278) 30 Other (expense) income, net (4) 3 35 31 ------------------ ---------------- ---------------- ---------------- INCOME BEFORE INCOME TAXES 164 501 334 1,335 Income tax expense 99 172 194 475 ------------------ ---------------- ---------------- ---------------- NET INCOME $ 65 $ 329 $ 140 $ 860 ================== ================ ================ ================ NET INCOME PER COMMON SHARE, BASIC AND DILUTIVE $0.04 $0.10 $0.08 $0.38 ================== ================ ================ ================
See accompanying notes. 5 CENTRAL EUROPEAN DISTRIBUTION CORPORATION Amounts in columns expressed in thousands (except per share data) - -------------------------------------------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Foreign currency Additional Retained translation Common Stock paid-in-capital earnings adjustment Total ------------------------- ----------------- -------------- --------------- ------------- No. of shares Amount ------------------------- Balance at December 31, 1997 1,780,000 $18 $ 36 $ 280 $ - $ 334 Net income for the nine months ended September 30, 1998 - - - 860 - 860 Foreign currency translation adjustment - - - - (265) (265) ------------------------- ----------------- -------------- --------------- ------------- Comprehensive income for the nine months ended September 30, 1998 - - - 860 (265) 595 Initial public offering in July 1998 2,000,000 20 10,598 - - 10,618 ------------------------- ----------------- -------------- --------------- ------------- BALANCE AT SEPTEMBER 30, 1998 3,780,000 $38 $10,634 $1,140 $(265) $11,547 ========================= ================= ============== =============== =============
See accompanying notes. 6 CENTRAL EUROPEAN DISTRIBUTION CORPORATION Amounts in columns expressed in thousands - -------------------------------------------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months Nine months ended ended September 30, September 30, 1997 1998 --------------- -------------- NET CASH USED IN OPERATING ACTIVITIES (324) (5,178) INVESTING ACTIVITIES Purchases of equipment (85) (450) Proceeds from the disposal of equipment 32 - Net increase in marketable securities - (1,442) --------------- -------------- NET CASH USED IN INVESTING ACTIVITIES (53) (1,892) FINANCING ACTIVITIES Borrowings on overdraft facility 12,592 24,575 Payment of overdraft facility (12,461) (24,875) Payment of capital lease obligations (147) (113) Short-term borrowings 500 725 Payment of short term borrowings (490) (1,350) Long-term borrowings 7 139 Payment of long-term borrowings - (422) Costs paid in 1997 in connection with public offering (124) - Net proceeds from initial public offering - 10,842 --------------- -------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (123) 9,521 --------------- -------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (500) 2,451 Cash and cash equivalents at beginning of period 740 1,053 --------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD 240 3,504 =============== ==============
See accompanying notes. 7 These consolidated condensed financial statements (and notes thereto) are unaudited, but include in the opinion of management, all adjustments necessary (all of a normal recurring nature) for a fair presentation of such data. The results for the unaudited interim periods are not necessarily indicative of the results expected for the entire year. The condensed balance sheet at December 31, 1997 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles (GAAP). The consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements for each of the three years in the period ended December 31, 1997. 1. ORGANISATION AND DESCRIPTION OF BUSINESS Central European Distribution Corporation (CEDC) was organized as a Delaware Corporation in September 1997 to operate as a holding company through its sole subsidiary, Carey Agri International Poland Sp. z o.o. (Carey Agri). CEDC and Carey Agri are referred to herein as the Company. In July 1998, CEDC had an initial public offering of 2,000,000 shares (at $6.50 per share) receiving net proceeds of approximately $10.6 million. The shares are currently quoted on the Nasdaq SmallCap Market. 2. ACCOUNTING POLICIES The significant changes since December 31, 1997 in accounting policies and practices followed by the Company are as follows: Foreign Currency Translation and Transactions As stated above, Carey Agri maintains its books of account in Polish zloties. The accompanying consolidated condensed financial statements have been prepared in US Dollars. For all periods prior to January 1, 1998, transactions and balances not already measured in US Dollars (primarily Polish zloties) have been remeasured into US Dollars in accordance with the relevant provisions of US Financial Accounting Standard (FAS) No. 52 "Foreign Currency Translation" as applied to entities in highly inflationary economies. Under FAS No. 52, revenues, costs, capital and non-monetary assets and liabilities are translated at historical exchange rates prevailing on the transaction dates. Monetary assets and liabilities are translated at exchange rates prevailing on the balance sheet date. Exchange gains and losses arising from remeasurement of monetary assets and liabilities that are not denominated in US Dollars are credited or charged to operations. Effective January 1, 1998, the Company no longer considers Poland to be a hyper-inflationary economy. Therefore, the Company has ceased accounting for its Polish activities using provisions applicable to hyper-inflationary economies on January 1, 1998 and treats the Polish zloty as its functional currency. See the discussion below regarding the effect of this change on comprehensive income. Estimates The preparation of financial statements in conformity with 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. Marketable Securities All marketable securities are classified as available-for-sale and are available to support current operations or to take advantage of other investment opportunities. These securities are stated at estimated fair value based upon market quotes. At September 30, 1998 marketable securities consist entirely of state and municipal debt securities and fair value approximates cost. 8 Cash and Cash Equivalents Short-term investments that have a maturity of three months or less from the date of purchase are classified as cash equivalents. Effect of New Accounting Standards In June 1997, the Financial Accounting Standards Board (FASB) issued its Statement No. 130, "Reporting Comprehensive Income". This standard became effective for the Company in the three months ending March 31, 1998, and it requires the disclosure of comprehensive income which 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. As disclosed in this Note 2, for all periods before January 1, 1998, the Company remeasures transactions and results of its Polish subsidiary in accordance with FAS No. 52 as applied to entities in highly inflationary economies. Therefore, exchange gains and losses arising from remeasurements of these monetary assets and liabilities are credited or charged to net income. However, in 1998 since Poland is no longer considered a highly inflationary economy, these remeasurements are recorded as a separate component of equity and, under FAS No. 130, included as part of comprehensive income. Comprehensive income for the nine months and three months ended September 30, 1998 was $595,000 and $60,000, respectively. In June 1997, the FASB issued its Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information". The standard is effective for the Company in the year ending December 31, 1998, and it requires, among other provisions, that a public business enterprise report financial and descriptive information about its reportable operating segments. The Company does not have any separate reportable operating segments under the requirements of FAS No. 131. Net Income Per Common Share Net income per common share is calculated under the provisions of FAS No. 128, "Earnings per Share". The average number of shares outstanding was 1,780,000 for all of 1997. Giving effect of the initial public offering on July 27, 1998, the weighted average number of shares outstanding for the three and nine months ended September 30, 1998 was 3,193,043 and 2,256,191, respectively. The stock options and warrants outstanding at September 30, 1998 were not included in the computation of diluted earnings per common share as the effect would be antidilutive. 3. LONG-TERM DEBT AND SHORT-TERM BANK LOANS All long-term debt and short-term bank loans were paid in full by the Company in the third quarter of 1998 using the proceeds from the initial public offering. 9 4. INCOME TAXES Total income tax expense varies from expected income tax expense computed at Polish statutory rates (38% in 1997 and 36% in 1998) as follows:
Nine months Nine months ended ended September 30, September 30, 1997 1998 ---------------- ---------------- Tax at Polish statutory rate $127 $481 Reduction in deferred tax valuation allowance - (24) Permanent differences 35 9 Other 32 9 ================ ================ Income tax expense $194 $475 ================ ================
The corporate income tax rates in Poland will be 34% in 1999 and 32% in 2000. Carey Agri's tax liabilities (including corporate income tax, Value Added Tax, 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. CEDC's US federal income tax returns will also be subject to examination by US tax authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determination by the tax authorities. 5. CONTINGENT LIABILITIES The Company is involved in litigation and has claims against it for matters arising in the ordinary course of business. In the opinion of management, the outcome will not have a material adverse effect on the Company. 6. SUBSEQUENT EVENTS In October 1998, the Company amended its 1997 Stock Incentive Plan to increase the number of shares covered by options given to each newly elected outside director of the Company from 500 shares to 3,500 shares. This increase is also effective for the four current outside directors. 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this report. OVERVIEW The Company's operating results are generally determined by the volume of alcoholic beverages that can be sold by the Company through its national distribution system, the gross profits on such sales and control of costs. The Company purchases the alcoholic beverages it distributes from producers as well as other importers and wholesalers. Almost all such purchases are made with the sellers providing a period of time, generally between 25 and 90 days, before the purchase price is to be paid by the Company. Since its initial public offering, the Company pays costs on delivery for its domestic vodka purchases in order to receive additional discounts. The Company sells the alcoholic beverages with a mark-up over its purchase price, which reflects the market price for such individual product brands in Poland. The Company's bad debt ratio provision as a percentage of net sales was 0.12% in 1997 and 0.06% in the nine-month period ended September 30, 1998. The following comments regarding variations in operating results should be read considering the rates of inflation in Poland during 1997 was 14.9% and during the nine months ended September 30, 1998 was 6.9% -- as well as the devaluation of the Polish zloty compared to the U.S. Dollar, which was 22.6% in 1997 and 1.7% in the nine months ended September 30, 1998. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1997 Net sales increased $7.36 million, or 26.8% from $27.50 million in 1997 to $34.86 million in 1998. This increase is mainly due to increased sales of domestic vodka and increased market penetration by the existing distribution system. Cost of goods sold increased $5.83 million, or 24.6%, from $23.76 million in 1997 to $29.59 million in 1998. As a percentage of net sales cost of goods sold decreased from 86.4% to 84.9%. This decrease is mainly due to selling price increases for domestic vodka in the first half of 1998, increased discounts on domestic vodka due to higher purchases and, in the third quarter 1998, paying for the purchases more quickly. These items offset the higher portion of vodka sales which sells at a lower gross margin than imported alcohol products. Sales, general and administrative expense increased 28.0% from $3.06 million in 1997 to $3.91 million in 1998. This increase is mainly due to the expansion of sales noted above. As a percentage of net sales, sales, general and administrative expenses increased slightly from 11.1% to 11.2%. Interest expense increased $74,000 or 69.8% from $106,000 in 1997 to $180,000 in 1998. This increase is mainly due to additional short-term credits to support the sales growth noted above and additional funds required to finance the public offering expenses. As a percentage of net sales, interest expense was 0.4% in 1997 and 0.5% in 1998. In 1998, interest income was $99,000 which resulted from earnings on the funds raised from the public offering. Net realized and unrealized foreign currency transactions resulted in losses of $278,000 in 1997 and gains of $30,000 in 1998. This favorable result for 1998 is mainly due to gains on the funds transferred to the Company's Polish subsidiary and to the relative stability of the zloty in 1998, versus the U.S. dollar. Income tax expense increased $281,000, from $194,000 in 1997 to $475,000 in 1998. This increase is mainly due to the increase in income before income taxes from $334,000 to $1,335,000. The effective tax rate decreased from 58.1% in 1997 to 35.6% in 1998. Permanent differences (for items such as non-deductible interest, taxes, and depreciation) between financial and taxable income normally make up a considerably lower percentage of income before income taxes when income before income taxes is higher, as it was in 1998. For this reason, as well as the decrease in the statutory tax rate in Poland from 38% in 1997 to 36% in 11 1998, the effective tax rate was significantly lower in 1998. See notes to the consolidated condensed financial statements for further information on income taxes. Net income increased $720,000 from $140,000 in 1997 to $860,000 in 1998. This increase is due to the factors noted above. THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1997 Net sales increased $2.99 million, or 30.0% from $9.98 million to $12.97 million. This increase is mainly due to increased sales of domestic vodka and increased market penetration by the existing distribution system. Cost of goods sold increased $2.49 million, or 29.0%, from $8.57 million in 1997 to $11.06 million in 1998. As a percentage of net sales cost of goods sold decreased from 85.9% to 85.3%. This decrease is mainly due to better terms obtained from vodka producers due to acceleration of payments and higher sales volumes. Sales, general and administrative expense increased 31.3% from $1.15 million in 1997 to $1.51 million in 1998. This increase is mainly due to the expansion of sales noted above. As a percentage of net sales, sales, general and administrative expenses increased from 11.5% to 11.6%. Interest expense increased $50,000 from $25,000 in 1997 to $75,000 in 1998. This increase is mainly due to additional short-term credits to finance the public offering expenses and to support the sales growth noted above. During the third quarter of 1998, the Company used part of the proceeds from the public offering to pay off all bank debt. In the first period after the public offering, interest income was $99,000. Net realized and unrealized foreign currency transactions resulted in losses of $65,000 in 1997 and gains of $70,000 in 1998. The net foreign currency gains resulted mainly from gains on the funds raised from the public offering and transferred to the Polish subsidiary. Income tax expense increased $73,000, from $99,000 in 1997 to $172,000 in 1998. This increase is mainly due to the increase in income before income taxes from $164,000 to $501,000. The effective tax rate decreased from 60.4% in 1997 to 34.3% in 1998. Permanent differences (for items such as non-deductible interest, taxes, and depreciation) between financial and taxable income normally make up a considerably lower percentage of income before income taxes when income before income taxes is higher, as it was in 1998. For this reason, as well as the decrease in the statutory tax rate in Poland from 38% in 1997 to 36% in 1998, the effective tax rate was significantly lower in 1998. See notes to the consolidated condensed financial statements for further information on income taxes. Net income increased $264,000 from $65,000 in 1997 to $329,000 in 1998. This increase is due to the factors noted above. STATEMENT OF LIQUIDITY AND CAPITAL RESOURCES The Company's net cash and cash equivalent balance increased by $2,451,000 in the first nine months of 1998 compared to a decrease of $500,000 in the corresponding period of 1997, primarily as a result of proceeds from the public offering and subsequent use of the proceeds to retire the outstanding debt and to improve working capital. The net cash used in operating activities was $5,178,000 in 1998 compared to $324,000 in 1997. The increase in cash used is mainly due to higher working capital required to finance COD purchases of domestic vodka, which enabled the Company to obtain better terms as well as the strong sales growth in 1998. The net cash used in investing activities in 1998 amounted to $1,892,000, and consisted of net investments in marketable securities of $1,442,000 and of equipment in the amount of $450,000, which are in most part purchases of transportation equipment. 12 Financing activities resulted in a net increase of $9,521,000. The cash increase of $10,842,000 provided by net proceeds from the public offering was offset by the payment of all outstanding short term and long term borrowings. The net change of the overdraft facility was a decrease of borrowing of $300,000. STATEMENT ON INFLATION AND CURRENCY FLUCTUATIONS Inflation in Poland is projected at 9.5% for the whole of 1998, substantially lower than in previous years and therefore the impact on the financial statements in the first nine months of the year is less material than in previous years. The share of purchases denominated in foreign (non-Polish) currencies has decreased resulting in lower foreign exchange exposure. Also, all borrowings denominated in US dollars have been paid in the three months ended September 30, 1998 using the proceeds from the public offering, which has resulted in decreased exposure to foreign currency fluctuations for the Company's Polish subsidiary. The zloty was relatively stable in the first six months of the year, but in the following three months it fluctuated more heavily due in part to concerns over the adverse economic developments in Russia. SEASONALITY The Company's sales have been historically seasonable with over 56% of the sales in 1997 occurring in the second half of the year, of which over 31% occurred in the last quarter. The higher leveraging of the business results in a larger share of net profits earned in the second half of the year. In fiscal 1997, over 75% of net profits were earned in the second half of the year. The Company expects to experience variability in the sales and net income on a quarterly basis. The Company's working capital requirements are also seasonal, and are normally highest in the months of December to January. Liquidity is then normally improving when collections are made on the higher sales during the month of December. LEGAL PROCEEDINGS The Company continues to be involved in litigation from time to time in the ordinary course of business. In management's opinion, the litigation in which the Company is currently involved, individually and in the aggregate, is not material to the Company's financial condition or results of operations. YEAR 2000 COMPLIANCE The Company believes that it will able to achieve year 2000 compliance by the end of 1999. Given the relatively small size of the Company's systems and that the Company uses standard software systems that are expected to be Year 2000 compliant in the first quarter of 1999, the Company does not expect any disruptions in its operations as a result of any failure by the Company to be in compliance. The Company estimates that the cost of upgrading the software and consulting time needed for the implementation at $30,000 in total. The Company estimates that the cost of replacing non compliant hardware will not be material and will be carried out during 1999 in the ordinary course of business. The Company's operating systems are commercially available and need to be upgraded to be fully compliant at the estimated cost of $20,000. 13 PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The Company completed its initial public offering (the "Offering") of its common stock, $.01 per value (the "Common Stock"), on July 31, 1998. The registration statement relating to the Offering (File No. 333-42387) was declared effective by the SEC on July 27, 1998. The net proceeds of the Offering to the Company after deducting expenses totaled $10,600,000. The Company disclosed the use of $5.0 million of such proceeds in the quarterly filing on Form 10-Q for the period ended June 30, 1998. Since the date of that filing and up to September 30, 1998, of the remaining $5.6 million in net proceeds, $1.4 million has been used to retire all outstanding borrowings, $0.5 million to improve the working capital of the Company and $3.7 million is being held in short-term U.S. dollar-denominated deposits or marketable securities. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------- ------------------- 27.1 Financial Data Schedule. 99.1 Press release dated November 11, 1998. (b) Reports on Form 8-K None 14 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 THEREUNTO DULY AUTHORIZED. CENTRAL EUROPEAN DISTRIBUTION CORPORATION (registrant) Date: November 12, 1998 By: /s/ William V. Carey ------------------------------------------- William V. Carey President and Chief Executive Officer Date: November 12, 1998 By: /s/ Robert Bohojlo ------------------------------------------- Robert Bohojlo Vice President and Chief Financial Officer, 15 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED Number EXHIBIT DESCRIPTION Page - ---------- ------------------- ------------- 27.1 Financial Data Schedule. 99.1 Press release dated November 11, 1998.
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF CEDC FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 3,504 1,442 7,410 116 3,548 16,174 1,212 409 16,977 5,430 0 0 0 38 11,509 16,977 34,861 34,861 29,593 29,593 0 0 180 1,335 475 860 0 0 0 860 0.38 0.38 All sales are in the country of Poland.
EX-99.1 3 PRESS RELEASE EXHIBIT 99.1 CENTRAL EUROPEAN DISTRIBUTION CORPORATION ANNOUNCES 400 PERCENT INCREASE IN THIRD QUARTER NET PROFITS; REVENUES UP OVER 30 PERCENT YEAR ON YEAR. ALEXANDRIA, VA., NOVEMBER 11, 1998/ CENTRAL EUROPEAN DISTRIBUTION CORPORATION (NASDAQ: CEDC), today announced third quarter earnings of $329,000, or $.10 per share on a fully diluted basis for the three-month period ending September 30, 1998, compared to $65,000, or $0.04 per share on a fully diluted basis for the same period in 1997. Total revenues rose 30 percent to $12.97 million during the quarter ended September 30, 1998 from $9.98 million for the third quarter 1997. Both revenues and earnings were a record for the company. For the nine-month period ended September 30, 1998, earnings increased over 500 percent of $860,000, or $0.38 per share on a fully diluted basis, from $140,000, or $0.08 per share on a fully diluted basis in the nine months ended September 30, 1997, as after tax margin on revenue increased to 2.5 percent from 0.5 percent. Total revenues increased 27 percent to $34.86 million from $27.50 million during the same period in 1997. Also, during the third quarter the company repaid its outstanding debt and is now debt free. William Carey, Chairman and CEO commented, "The third quarter was our transition from a private to a public company. Our record earnings and revenues are a result of both our continuing strong internal growth and the immediate effective use of capital raised in the IPO. The capital raised has enabled us to achieve increased margins of several hundred basis points in our domestic vodka business, which comprises over 50% of total sales." "Outside factors, namely the Russian crisis, which caused abnormal currency fluctuations in the quarter, were properly managed and had only a minimal effect on operations. The Polish currency, the zloty, has since recovered and is currently near its yearly high against the dollar. We view the strength of the zloty as a vote of confidence in the continuing growth of the Polish economy and a final decoupling from the view that Poland is dependent on the Russian market." The Company also announced that it has received the exclusive distribution rights in Poland for Evian water, the world's leading bottled water, from the Dannon Group of France. Mr. Carey further commented, "With the introduction of Evian water, we continue to add non-alcoholic brand names to our product portfolio. In recent months we have added non-alcoholic products such as Poland's number two export drink and Dunhill Cigars. As previously announced, signing new exclusive brands is one of our primary strategies. Since the IPO on July 27, 1998, we have signed five new spirit brands, Camus Cognac, Dekuyper Liqueurs, Black and White, Vat 69 and White Horse scotches, that are now exclusively distributed, as well as the above mentioned non-alcoholic products. We are currently in discussions with several major brands about exclusive distribution of their products in Poland and we are actively pursuing acquisitions, as stated in the registration statement, that will significantly increase the breadth of our distribution in Poland." Mr. Carey concluded, "During this quarter we have been able to further penetrate key accounts, including the largest chain of vodka stores, and the rapidly growing petroleum retail outlets, including British Petroleum, as a result of our ability to provide a complete portfolio of imported wines, beer and spirits as well as domestic vodka on a nationwide basis. We look to continue to gain market share in the Polish vodka market by opening additional key accounts, which will enable us to add our imported products through these new outlets. These factors should all contribute to our continued growth in revenues and earnings." CEDC is the leading importer of beer, wine and spirits, as well as the largest distributor of domestic vodka on a nationwide basis in Poland, a four billion dollar market at the retail level in 1997. The Company operates eight regional distribution centers in major urban areas throughout Poland, one of Europe's fastest growing economies, from which it distributes many of the world's leading brands of spirits, wines and beers, including brands such as Johnnie Walker, Jim Beam, Sutter Home, Miller, Corona and Guinness. Except for the historical information contained herein, the matters discussed in this news release are forward looking statements that involve risks and uncertainties that are detailed from time to time in the Company's SEC reports, including but not limited to the discussions in the Management's Discussion & Analysis included in the Quarterly Report on Form 10-Q for third quarter 1998. For further information please contact Jeffrey Peterson, Executive Vice President, at 941-330-1558. -2- CENTRAL EUROPEAN DISTRIBUTION CORPORATION Consolidated Income Statement and Balance Sheet Data (Unaudited), (In thousands except per share data)
3 months ended 9 months ended -------------------------------- -------------------------------- Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997 (unaudited) (unaudited) (unaudited) (unaudited) Net sales $12,968 $ 9,977 $34,861 $27,499 Gross profit 1,911 1,406 5,268 3,740 Selling, general & administrative expenses 1,507 1,148 3,913 3,057 Operating income 404 258 1,355 683 Non-operating income (expense) Interest (expense) (75) (25) (180) (106) Interest income 99 -- 99 -- Realized and unrealized foreign currency transaction (losses) gains, net 70 (65) 30 (278) Other (expense) income, net 3 (4) 31 35 Income before income taxes 501 164 1,335 334 Income tax expense 172 99 475 194 Net income $ 329 $ 65 $ 860 $ 140 NET INCOME PER COMMON SHARE, BASIC AND DILUTIVE $ 0.10 $ 0.04 $ 0.38 $ 0.08 Weighted average common shares outstanding, basic and dilutive 3,193 1,780 2,256 1,780
At Sept. 30, 1998 At Dec. 31, 1997 (unaudited) Cash $ 4,946 $ 1,053 Accounts receivable 7,294 6,970 Inventories 3,548 3,280 Equipment, net 803 503 Total assets 16,977 12,530 Total current liabilities 5,430 12,149 Long term debt and capital lease obligations -- 47 Stockholders' equity 11,547 334
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