10-Q 1 d10q.txt 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 MARCH 31, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD JANUARY 1, 2002 TO MARCH 31, 2002. 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.) 1343 MAIN STREET, #301 SARASOTA, FLORIDA 34236 -------------------------------------- --------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) (941) 330-1558 --------------------- (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 March 31, 2002: Common Stock ($.01 par value).................. 5,291,401, shares _____________________________________________________ INDEX
PAGE ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements ...................................................... 3 Consolidated Condensed Balance Sheets, March 31, 2002 (unaudited) and December 31, 2001 .................................... 3-4 Consolidated Condensed Statements of Income (unaudited) for the three month periods ended March 31, 2001 and March 31, 2002 ............... 5 Consolidated Condensed Statements of Changes in Stockholders Equity (unaudited) as of March 31, 2002 ................................... 6 Consolidated Condensed Statements of Cash Flows (unaudited) for the three month periods ended March 31, 2001 and March 31, 2002 ........... 7 Notes to Consolidated Condensed Financial Statements (unaudited) .......... 8-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ....................................... 14-16 Item 3. Quantitative and Qualitative Disclosure About Market Risk ................. 17 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K .......................................... 18 Signatures ........................................................................... 19
2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CENTRAL EUROPEAN DISTRIBUTION CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) Amounts in columns expressed in thousands
December March 31, 31, 2001 2002 CURRENT ASSETS Cash and cash equivalents $ 2,466 $ 9,707 Accounts receivable, (net of allowance for doubtful accounts of $1,930,000 and $2,314,000 respectively) 38,102 28,888 Inventories 9,001 12,083 Prepaid expenses and other current assets 1,560 2, 254 Deferred income taxes 480 523 ---------------------- TOTAL CURRENT ASSETS $ 51,609 $ 53,455 Intangible assets, net 3,002 2,872 Goodwill, net 9,969 9,687 Equipment, net 3,372 3,309 Deferred income taxes 411 461 Other assets 614 976 ---------------------- TOTAL ASSETS $ 68,977 $ 70,760 ======================
See accompanying notes. 3 CENTRAL EUROPEAN DISTRIBUTION CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) - CONTINUED Amounts in columns expressed in thousands
December March 31, 31, 2001 2002 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 29,685 $ 25,844 Bank loans and overdraft facilities 9,861 7,426 Current portion of long term debt 1,912 2,160 Current portion of obligations under capital leases 269 196 Income taxes payable 308 363 Taxes other than income taxes 999 611 Other accrued liabilities 1,692 1,422 ---------------------- TOTAL CURRENT LIABILITIES 44,726 38,022 Long-term debt, less current maturities 3,344 3,183 Long-term obligations under capital leases 151 268 COMMITMENTS AND CONTINGENCIES 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, 4,503,801 and 5,364,301 shares issued at December 31, 2001 and March 31, 2002, respectively) 46 55 Additional paid-in-capital 15,383 23,356 Retained earnings 7,161 7,943 Accumulated other comprehensive loss (1,684) (1,917) Less Treasury Stock at cost (72,900 shares at December 31, 2001 and March 31, 2002) (150) (150) ---------------------- TOTAL STOCKHOLDERS' EQUITY 20,756 29,287 ---------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 68,977 $ 70,760 ======================
See accompanying notes. 4 CENTRAL EUROPEAN DISTRIBUTION CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) Amounts in columns expressed in thousands (except per share data)
Three Three months months ended ended March 31, March 31, 2001 2002 Net sales $ 33,602 $ 42,650 Cost of goods sold, excluding depreciation and amortization 29,051 36,771 ------------------------ 4,551 5,879 Selling, general and administrative expenses, excluding deprecation and amortization 3,303 3,920 Depreciation of equipment 238 234 Amortization of goodwill and trademarks 197 43 Bad debt expense 229 384 ------------------------ Operating income 584 1,298 Non operating income (expense) Interest income 19 30 Interest expense (297) (237) Realized and un-realized foreign currency transaction gains, (losses), net 216 (99) Other income, net 14 89 ------------------------ Income before taxes 536 1,081 Income tax expense 157 299 ------------------------ Net income $ 379 $782 ======================== Net income per share of common stock, basic $ 0.09 $ 0.17 ======================== Net income per share of common stock, diluted $ 0.09 $ 0.16 ========================
See accompanying notes. 5 CENTRAL EUROPEAN DISTRIBUTION CORPORATION CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) Amounts in columns expressed in thousands
Capital Stock ------------- Issued In Treasury ------ ----------- No. of Amount No. of Amount Additional Retained Accumulated Total Shares Shares Paid-in- Earnings Other Capital Comprehensive Loss Balance at December 31, 2001 4,504 $46 73 $(150) $15,383 $7,161 $(1,684) $20,756 Net income for the three months ended March 31, 2002 782 782 Foreign currency translation adjustment (233) (233) ----------------------------------------------------------------------------------- Comprehensive income for the three months ended March 31, 2002 549 Private placement offering of Company stock 800 8 7,543 7,551 Stock options issued to consultants 100 100 Stock options exercised by employees and non-employees 60 1 330 331 ----------------------------------------------------------------------------------- Balance at March 31, 2002 5,364 $55 73 $(150) $23,356 $7,943 $(1,917) $29,287 ===================================================================================
See accompanying notes. 6 CENTRAL EUROPEAN DISTRIBUTION CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Amounts in columns expressed in thousands (except per share data)
Three months ended Three months ended March 31, 2001 March 31, 2002 OPERATING ACTIVITES Net income 379 782 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 435 277 Deferred income tax benefit (16) (93) Bad debt provision 229 384 Changes in operating assets and liabilities Accounts receivable 8,148 8,830 Inventories 1,662 (3,082) Prepayments and other current assets (179) (694) Trade accounts payable (10,482) (3,841) Income taxes and other taxes payable (318) (333) Other accrued liabilities and other assets 524 (439) --------------------------------------- Net Cash Provided By Operating Activities 382 1,791 INVESTING ACTIVITIES Purchased of equipment (523) (84) --------------------------------------- Net Cash Used In Investing Activities (523) (84) FINANCING ACTIVITIES Repayments of short-term borrowings and overdraft facilities (30) (2,435) Proceeds from long-term borrowings - 744 Repayments of long-term borrowings (1,304) (657) Net proceeds from private placement offering of Company's common stock - 7,551 Stock options exercised - 331 Purchase of treasury shares (30) - --------------------------------------- Net Cash Provided By (Used In) Financing Activities (1,364) 5,534 --------------------------------------- Net Increase (Decrease) in Cash and cash equivalents (1,505) 7,241 Cash and cash equivalents at beginning of period 2,428 2,466 --------------------------------------- Cash and cash equivalents at end of period $ 923 $ 9,707 ======================================= SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES Common stock issued to consultants $ - $ 100 ======================================= Capital leases $ - $ 60 ======================================= Supplemental disclosures of cash flow information Interest paid $ 268 $ 185 Income tax paid $ 169 $ 372
See accompanying notes. 7 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Amounts in tables expressed in thousands (except per share data) 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). In 1999 CEDC formed two additional subsidiaries (MTC and PWW) and in 2000 acquired PHA and in 2001 Astor. CEDC and its subsidiaries are referred to herein as the Company. On March 28, 2002, the Company completed a private placement offering of 800,000 unregistered shares of its common stock at $10.50 per share for gross proceeds of $8,400,000. The funds are to be used primarily for the acquisition of Damianex S.A. and AGIS S.A., as discussed in note 12. 2. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included and the disclosures herein are adequate to make the information presented not misleading. Operating results for the three-month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-K for the year ended December 31, 2001. 3. COMPREHENSIVE INCOME Because the Company's equity investments are substantially all in Polish Zloty, the gains or losses resulting from the restatement of these equity investments into U.S. Dollars are posted to the Comprehensive Income Account. Because of the depreciation of the Polish Zloty against the U.S. Dollar during the three-month period ending March 31, 2002, the Company incurred foreign currency translation losses of $233,000 on these equity investments. This movement means that the cumulative balance on the Comprehensive Income Account was a loss of $1,917,000 as at March 31, 2002 and this has been reflected in the Consolidated Condensed Balance Sheets and Statements of Changes in Stockholder's Equity (unaudited). The total of the accumulated other comprehensive loss consist solely of currency translation adjustments. No tax benefit has been recorded. The Company has changed its policy in regards to the repayment of inter-company debt considered to be of a long-term nature. As a result, the accumulated foreign exchange loss ($15,000) in regards to the 1,165,000 EURO inter-company loan has been reclassified from accumulated other comprehensive loss and charged to the statement of operations for the three month period ended March 31, 2002. The inter-company loan was fully repaid during the month of April 2002. 8 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Amounts in tables expressed in thousands (except per share data) 4. EARNINGS PER SHARE Net income per share of common stock is calculated under the provisions of SFAS No. 128, "Earnings per Share". The following table sets forth the computation of basic and diluted earnings per share for the periods indicated.
Three Months Ended March 31, ------------------------------------- 2001 2002 ----------------- ---------------- Basic: Net income $ 379 $ 782 ================= ================ Weighted Average shares of common stock outstanding 4,332 4,508 ================= ================ Basic earnings per share $ 0.09 $ 0.17 ================= ================ Diluted: Net Income $ 379 $ 782 ================= ================ Weighted Average shares of common stock outstanding 4,332 4,508 Net effect of diluted effect of employee stock options based on the treasury - 180 stock method. Net effect of diluted effect of stock options based on the treasury stock method in regards to IPO options, warrants, contingent shares from acquisition and options issued to - 121 consultants ------------------------------------- Totals 4,332 4,809 ===================================== Diluted earnings per share $ 0.09 $ 0.16 =====================================
During the three month period ended March 31, 2002, 60,500 stock options were exercised (50,000 non-employee stock options and 10,500 employee stock options). Warrants granted in connection with the 1998 IPO and employee and non-employee stock options granted from 1998 to 2001 have been included in the above calculations of diluted shares since the exercise price is lower than or equal to the average market price of the common shares during the three month periods 2002. During the first quarter of 2001, the stock options were anti-dilutive. The Company is required to issue 80,800 common shares to Astors's former shareholders as part of the contingency consideration payout. These shares have been included in the calculation of diluted earnings per share. The shares are to be issued in the latter part of May 2002. The shares have an immaterial effect on the Company earnings per share calculation. 9 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Amounts in tables expressed in thousands (except per share data) 5. AMORTIZATION OF GOODWILL The Company has adopted SFAS No. 142 effective January 1, 2002. Under SFAS No. 142 goodwill is no longer amortized but reviewed at the beginning of the fiscal year for impairment, or more frequently if certain indicators arise. In addition, the statement requires reassessment of the useful lives of previously recognized intangible assets. The Company's carrying value of goodwill is approximately $10 million at March 31, 2002 and is attributable to its only reporting unit - wholesale spirit division. The Company is required to complete its transitional impairment review by June 30, 2002. As of the date hereof, the Company does not expect any impairment loss as a result of such a test when it is completed. The change in the carrying value of goodwill from December 31, 2001 to March 31, 2002 is a result of translating the Polish zloty amount into US Dollars using the rate in effect on March 31, 2002. With the adoption of the statement, the Company ceased amortization of goodwill as of January 01, 2002. Had the Company been accounting for its goodwill under SFAS No. 142 for all periods presented, the Company's net income and earnings per share would have been as follows:
Three months ended March 31, ----------------------------------- 2001 2002 ---------------- --------------- Reported net income $ 379 $ 782 Goodwill 101 - ---------------- --------------- Adjusted net income $ 480 $ 782 ================ =============== Basic earnings per share of common stock Reported net income $0.09 $0.17 Goodwill $0.02 - ---------------- --------------- Adjusted basic earnings per share of common stock $0.11 $0.17 ================ =============== Diluted earnings per share of common stock Reported net income $0.09 $0.16 Goodwill $0.02 - ---------------- --------------- Adjusted diluted earnings per share of common stock $0.11 $0.16 ================ ===============
The following table reflects the components of intangible assets as of March 31, 2002.
March 31, 2002 ---------------- Trademarks $3,943 Less accumulated amortization 1,071 ---------------- Total amortized intangible assets $2,872 ================
The amortization expense for the three months ended March 31, 2002 was $43,000.. 10 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Amounts in tables expressed in thousands (except per share data) 6. LONG-TERM DEBT AND SHORT-TERM BANK LOANS
Long-term loans December 31, March 31, 2001 2002 ---------------------------------- USD $5,256 $4,617 PLN - $ 726 ---------------------------------- Total long-term debt $5,256 $5,343 ================================== Current-portion $1,912 $2,160 Long-term portion $3,344 $3,183
During January 2002, the Company obtained a 3 million zloty loan ($726,000) for its subsidiary -PHA. The loan is repayable over a three-year period. Principal payments are required to be made semi-annually starting June 2002. The interest rate on the zloty loan is considered to be market. The loan was to enable its subsidiary PHA to acquire one of the Carey Agri branches as part of an operational re-organization. The proceeds from the sale to PHA were used by Carey Agri to reduce its overdraft facilities.
December 31, March 31, 2001 2002 ---------------------------------- USD $2,275 $2,132 EUR $1,219 $1,203 PLN $6,367 $4,091 ---------------------------------- Total short-term borrowing and overdraft facilities $9,861 $7,426 ==================================
7. CAPITAL LEASE OBLIGATIONS During the three-month period, the Company entered into a number of capital leases for transportation equipment. The future minimum lease payments for the assets under capital lease at March 31, 2002 are as follows:
December 31, March 31, 2001 2002 ---------------------------------- 2002 $280 $147 2003 $157 $196 2004 $167 - ---------------------------------- $437 $510 Less interest (17) (46) ---------------------------------- $420 $464 ==================================
11 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Amounts in tables expressed in thousands (except per share data) 8. INCOME TAXES Total income tax expense varies from expected income tax expense computed at Polish statutory rates (34% in 1999 and 30% in 2000) as follows:
Three months ended March 31, 2001 March 31, 2002 ------------------ ------------------ Tax at the Polish Statutory rate $150 $303 Permanent differences and other items 7 (4) ------------------ ------------------ Income tax expense $157 $299 ================== ==================
The enacted corporate income tax rates in Poland were 28% in both 2001 and 2002. Tax liabilities (including corporate income tax, Value Added Tax, social security, and other taxes) of the Company's Polish subsidiaries may be subject to examinations by Polish tax authorities for up to five years from the end of the year in which the tax is payable. CEDC's US federal income tax returns are also subject to examination by US tax authorities. As the application of tax laws and regulations for many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements may change at a later date upon final determination by the tax authorities. 9. COMMITMENTS AND 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. 12 CENTRAL EUROPEAN DISTRIBUTION CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Amounts in tables expressed in thousands (except per share data) 10. DERIVATIVE FINANCIAL INSTRUMENTS All derivatives, whether designated in hedging relationships or not, are recorded on the balance sheet at fair value. The Company uses derivatives to moderate the financial market risks of its business operations. Derivative products such as forward contracts are used to hedge the foreign currency market exposures underlying certain liabilities with financial institutions. The Company hedging policy is not based on the requirements of SFAS 133 and therefore may be considered speculative The Company recorded a $70,000 gain and a $58,000 gain for the three-month periods ended March 31, 2001 and 2002 respectively, in regards to their derivative financial instruments. The gains have been recognized in non-operating income. 12. SUBSEQUENT EVENTS The Company completed the acquisition of Damianex effective April 22, 2002, for a cash purchase price of $7,138,000 and 152,996 shares of Company stock. The shares issued may not be transferred without the Company's consent for one year subsequent to the acquisition. As part of the purchase agreement with Damianex, a non-compete agreement was established with the former stockholders for a period of three years. The acquired company is based in (pound)ancut, Poland (south-eastern Poland). Damianex S.A. primary area of activity is the distribution of alcoholic beverages. The Company completed the acquisition of AGIS S.A. effective April 24, 2002, for a cash purchase price of $4,567,978 and 173,000 shares of Company stock. The shares issued may not be transferred without the Company's consent for six months subsequent to the acquisition. As part of the purchase agreement with AGIS, a non-compete agreement was established with the former stockholders for a period of three years. The acquired company is based in Torun, Poland (northern Poland). AGIS S.A. primary area of activity is the distribution of various spirits, mainly vodka. The acquisition of Damianex and AGIS was financed using the proceeds from the Company's recent private placement offering of 800,000 common shares, a $4.3 million loan taken on April 24, 2002 and the issuance of Company stock as indicated above. 13. RECLASSIFICATIONS Certain amounts in the consolidated condensed financial statements have been reclassified from the prior period to conform to the current period's presentation. 13 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 the initial public offering, in July 1998, the Company pays cash on delivery for 40-50% of 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 mark up reflects the market price for such individual product brands in the Polish market. The Company's bad debt ratio provision as a percentage of net sales was 0.39% in 1999, 0.39% in 2000, 0.68% in 2001, and 0.9% for the three- month period ended March 31, 2002. The following comments regarding variations in operating results should be read considering the rates of inflation in Poland during the period, 3.6% in 2001 and 1.1% for the three months ended March 31, 2002 - as well as the movement of the Polish Zloty compared to the U.S. Dollar. The Zloty appreciated 0.1% against the U.S. Dollar in 2001. For the three-month period ended March 31, 2002, the Zloty depreciated 3.7% against the U.S. Dollar. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2002 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2001 Net sales increased $9.0 million, or 26.9% from $33.6 million to $42.6 million. This increase is due to the inclusion of Astor for the three months to March 31, 2002, and organic growth. The inclusion of Astor for the three-months to March 31, 2002, accounted for $4.6 million or 13.7% of the increase. The remainder of $4.4 million or 13.2%, was attributable to the increased market penetration of the existing distribution system. Cost of goods sold increased $7.7 million, or 26.6% from $29.1 million in 2001 to $36.8 million in 2002. This increase is again mainly due to the inclusion of Astor's cost of goods sold for the 2002 quarter which accounted for $4.2 million or 14.4% of the increase. The remainder being $3.5 million or 12.1% is attributable to the increase in the business activity. Gross margin (excluding depreciation and amortization) increased $1.3 million from $4.6 million in 2001 to $5.9 million in 2002. Of this increase $0.4 million relates to the inclusion of Astor in the current quarter, the balance being due to internal growth. As a percentage of sales, gross margin increased 0.3% from 13.5% in 2001 to 13.8% in 2002. The gross margin generated from ongoing operation was 14.4%. This internal growth is due to the buying leverage available to the group. Selling, general and administrative expenses (excluding depreciation and amortization) increased $617,000, or 18.7% from $3,303,000 in 2001 to $3,920,000 in 2002. Of this increase $226,000 relates to Astor, with the balance of $391,000 being generated from ongoing operations. As a percentage of net sales, selling, general and administrative expenses decreased from 9.8% to 9.2%. Provision for doubtful debts increased $155,000 from $229,000 in 2001 to $384,000 in 2002. As a percentage to sales the provision was 0.7% of sales in 2001 whilst in 2002 it increased to 0.9%. Amortization of goodwill and trademark reduced $154,000 from $197,000 in 2001 to $43,000 in 2002. This is entirely due to the changes in US GAAP, which, remove the requirement for the Company to amortize the carrying value of its acquired goodwill. Instead, the Company will be 14 required to perform regular reviews of the carrying value of goodwill and make any reductions should there be an impairment in value. Operating profit increased by $0.7 million from $0.6 million in 2001 to $1.3 million in 2002. Of this increase $174,000 relates to Astor the remainder $0.5 million, or 92% has been generated from on-going operations. Interest expense decreased $60,000 from $297,000 in 2001 to $237,000 in 2002. This decrease is due to the increased working capital efficiency and the cash flow being generated from operations. Interest income increased $11,000 from $19,000 in 2001 to $30,000 in 2002. Net realized and un-realized foreign currency transaction losses increased $315,000 from a profit of $216,000 in 2001 to a loss of $99,000 in 2002. During the three months ended March 31, 2002, the zloty, in which a substantial portion of the Company's assets are denominated, depreciated 3.7% versus the U.S. Dollar, whereas for the same period ended March 31, 2001, it appreciated 1.0%. Income tax expense increased $142,000 from $157,000 in 2001 to $299,000 in 2002. This increase is mainly due to the increase in income before taxes from $536,000 to $1,081,000, respectively. The effective tax rate decreased from 29.3% in 2001 to 27.7% in 2002. Net income increased $403,000 from $379,000 in 2001 to $782,000 in 2002. This increase is due to the factors noted above. The increase is partly due to the results from Astor which amounted to $107,000, the balance $675,000 being generated from ongoing operations. The internal growth on earnings was 78%. STATEMENT OF LIQUIDITY AND CAPITAL RESOURCES The Company's net cash balance increased by $7.2 million in the first three months of 2002 compared to a decrease of $1.5 million in the corresponding period of 2001. The increase was primarily as a result of the proceeds from the Private Placement of equity, which, was completed in March 2002. These funds were used to complete the acquisitions made in April of 2002 and which are explained in note 12 above. The net cash provided by operating activities was $1.8 million in the three months to March 31, 2002. This compares to a positive $0.4 million generated in the similar period of 2001. The investing activities amount to $84,000 in the three months to March 31, 2002 and were primarily due to IT system upgrades and vehicle replacements. During the same period for 2001 investing activities amounted to $0.5 million. Financing activities resulted in a net increase in cash of $5.5 million. This was mainly due to the proceeds of the private placement of equity, which generated a net $7.5 million. The Company began 2002 with debts of $15.5 million and in the first three-months of 2002 the Company repaid debts of $3.1 million (2001: $1.4 million) and incurred new borrowings of $0.8 million (including capital leases). As at March 31, 2002 the Company had total third party debts of $13.2 million. The amount of the Company's stockholders' equity is directly affected by foreign currency translation adjustments. In the first three months of 2002, such adjustments resulted in a cumulative comprehensive loss of $1.9 million. See note 3 to the condensed consolidated financial statements for further information. STATEMENT ON INFLATION AND CURRENCY FLUCTUATIONS Inflation in Poland is projected at 3.5% for the whole of 2002, compared to 3.6% for 2001. For the first three months of 2002, inflation was 1.1%. The share of purchases denominated in non-Polish currency has decreased resulting in lower foreign exchange exposure for purchases. The Zloty has depreciated 3.7% against the US Dollar in the first three months of 2002. 15 SEASONALITY The Company's sales have been historically seasonable with around 20.0% of the sales in 2001 occurring in the first quarter of the year and over 30% occurred in the last quarter. The Company expects to experience variability in 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 November to December. Liquidity is then normally improving when collections are made on the higher sales during the month of January. OTHER MATTERS 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. 16 ITEM 3: Quantitative and Qualitative Disclosures About Marketable Securities Foreign Currency Risk. Currently some of the Company's loans are denominated in currencies other than its functional currency, the Polish Zloty. As a result in the three months ended March 31, 2002, the Company experienced significant foreign exchange movements. To contain these exposures the Company acquires fixed period forward exchange contracts. For further information see Note 10 above. During the first quarter the Company entered into a foreign currency collar derivative the objective of which was to reduce the cost of its normal hedging instruments currently used. The Company received a fee of approximately $145,000 for these instruments. Because these instruments have maturity dates of June and September 2002, fees received have been deferred until such time these instruments mature. 17 PART II. OTHER INFORMATION IITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (c) On March 28, 2002, the Company completed a private placement offering of 800,000 shares of its common stock at $10.50 per share receiving gross proceeds of $8,400,000. The shares were offered and sold to certain persons meeting the definition of "accredited investor," under Rule 501(a) promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended. The Company paid its placement agent a fee of 6.5% plus expenses. The securities were issued in reliance on the exemptions from the registration provided by Regulation D and Regulation S. ITEM 6. EXHIBITS AND REPORTS ON FORM 8K (a) Exhibit 27. Financial Data Schedule (b) Reports on Form 8-K During the quarter ended March 31, 2002 the Company filed the following 8K reports; 1. Announcement of the Damianex acquisition, filed on January 10, 2002. 2. Announcement of the AGIS acquisition, filed on February 21, 2002. 3. Announcement of the private placement of 800,000 shares of common stock, filed March 28, 2002. 18 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: May 15, 2002 By: /s/ WILLIAM V. CAREY ---------------------------------------- William V. Carey President and Chief Executive Officer Date: May 15, 2002 By: /s/ NEIL A.M. CROOK ---------------------------------------- Neil A.M. Crook Chief Financial Officer 19