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, 2010

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM              TO             

COMMISSION FILE NUMBER 0-24341

CENTRAL EUROPEAN DISTRIBUTION CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware	54-1865271
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

Two Bala Plaza, Suite #300, Bala Cynwyd, PA	19004
(Address of Principal Executive Offices)	(Zip code)

(610) 660-7817

(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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Large Accelerated Filer	x	Accelerated Filer	¨
Non-Accelerated Filer	¨  (Do not check if a smaller reporting company)	Smaller Reporting Company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):  Yes  ¨    No  x

The number of shares outstanding of each class of the issuer’s common stock as of May 6, 2010: Common Stock ($.01 par value) 70,648,070

INDEX

		PAGE
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Condensed Balance Sheets as of March 31, 2010 (unaudited) and as of December 31, 2009	1
	Consolidated Condensed Statements of Operations (unaudited) for the three month periods ended March 31, 2010 and March 31, 2009	2
	Consolidated Condensed Statement of Changes in Stockholders’ Equity (unaudited) as of March 31, 2010 and as of December 31, 2009	3
	Consolidated Condensed Statements of Cash Flows (unaudited) for the three month periods ended March 31, 2010 and March 31, 2009	4
	Notes to Consolidated Condensed Financial Statements (unaudited)	5-20
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21-31
Item 3	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4	Controls and Procedures	32
PART II	OTHER INFORMATION	33
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6	Exhibits	34
Signatures		35

CENTRAL EUROPEAN DISTRIBUTION CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)

Amounts in columns expressed in thousands

(except share information)

	March 31, 2010			December 31, 2009 (as adjusted, see Note 2)
ASSETS
Current Assets
Cash and cash equivalents	$	148,212		$	126,439
Restricted cash		—			481,419
Accounts receivable, net of allowance for doubtful accounts of $40,141 and $37,630 respectively		307,218			475,126
Inventories		102,694			92,216
Prepaid expenses and other current assets		39,900			33,302
Loans granted		—			1,608
Loans granted to affiliates		—			7,635
Deferred income taxes		84,100			82,609
Current assets of discontinued operations		215,537			267,561
Total Current Assets		897,661			1,567,915
Intangible assets, net		782,970			773,222
Goodwill, net		1,499,166			1,484,072
Property, plant and equipment, net		215,519			215,916
Deferred income taxes		29,733			27,123
Equity method investment in affiliates		247,574			244,504
Non-current assets of discontinued operations		70,548			101,778
Total Non-Current Assets		2,845,510			2,846,615
Total Assets	$	3,743,171		$	4,414,530
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Trade accounts payable	$	77,724		$	113,006
Bank loans and overdraft facilities		154,452			81,053
Income taxes payable		4,247			3,827
Taxes other than income taxes		120,944			208,784
Other accrued liabilities		86,326			91,435
Short-term obligations under Senior Notes		—			358,943
Current portions of obligations under capital leases		440			481
Deferred consideration		50,000			160,880
Current liabilities of discontinued operations		148,767			194,761
Total Current Liabilities		642,900			1,213,170
Long-term debt, less current maturities		36,439			106,043
Long-term obligations under capital leases		524			480
Long-term obligations under Senior Notes		1,161,087			1,205,467
Long-term accruals		3,109			3,214
Deferred income taxes		200,702			198,174
Non-current liabilities of discontinued operations		1,688			2,820
Total Long Term Liabilities		1,403,549			1,516,198
Stockholders’ Equity
Common Stock ($0.01 par value, 80,000,000 shares authorized, 69,513,705 and 69,411,845 shares issued at March 31, 2010 and December 31, 2009, respectively)		695			694
Additional paid-in-capital		1,298,000			1,296,391
Retained earnings		241,553			264,917
Accumulated other comprehensive income / (loss) of continuing operations		158,178			120,389
Accumulated other comprehensive income / (loss) of discontinued operations		(1,554	)		2,921
Less Treasury Stock at cost (246,037 shares at March 31, 2010 and December 31, 2009, respectively)		(150	)		(150	)
Total CEDC Stockholders’ Equity		1,696,722			1,685,162
Total Equity		1,696,722			1,685,162
Total Liabilities and Stockholders’ Equity	$	3,743,171		$	4,414,530

The accompanying notes are an integral part of the consolidated condensed financial statements.

1

CENTRAL EUROPEAN DISTRIBUTION CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

Amounts in columns expressed in thousands

(except per share information)

	Three months ended
	March 31, 2010			March 31, 2009 (as adjusted, see Note 2)
Sales	$	330,894		$	184,172
Excise taxes		(181,088	)		(113,400	)
Net Sales		149,806			70,772
Cost of goods sold		75,674			37,880
Gross Profit		74,132			32,892
Operating expenses		48,878			20,516
Operating Income		25,254			12,376
Non operating income / (expense), net
Interest (expense), net		(25,676	)		(9,872	)
Other financial income / (expense), net		34,912			(90,342	)
Other non operating income / (expense), net		(17,990	)		581
Income / (loss) before taxes, equity in net income from unconsolidated investments and noncontrolling interests in subsidiaries		16,500			(87,257	)
Income tax benefit / (expense)		(3,170	)		17,075
Less: Net (loss) attributable to noncontrolling interests in subsidiaries		—			(111	)
Equity in net earnings / (losses) of affiliates		(1,821	)		(20,865	)
Net income / (loss) from continuing operations attributable to CEDC	$	11,509		($	90,936	)
Discontinued operations
Income / (loss) from operations of distribution business (including impairment charge of $28.2 million)		(34,722	)		3,828
Income tax (expense)		(151	)		(552	)
Income / (loss) on discontinued operations		(34,873	)		3,276
Net (loss)	($	23,364	)	($	87,660	)
Net income / (loss) from continuing operations per share of common stock, basic	$	0.17		($	1.90	)
Net income / (loss) from discontinued operations per share of common stock, basic	($	0.50	)	$	0.07
Net (loss) from operations per share of common stock, basic	($	0.34	)	($	1.83	)
Net income / (loss) from continuing operations per share of common stock, diluted	$	0.17		($	1.90	)
Net income / (loss) from discontinued operations per share of common stock, diluted	($	0.50	)	$	0.07
Net (loss) from operations per share of common stock, diluted	($	0.34	)	($	1.83	)

The accompanying notes are an integral part of the consolidated condensed financial statements.

2

CENTRAL EUROPEAN DISTRIBUTION CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN

STOCKHOLDERS’ EQUITY (UNAUDITED)

Amounts in columns expressed in thousands

(except per share information)

	Common Stock							Additional Paid-in Capital			Retained Earnings			Accumulated other comprehensive income			Accumulated other comprehensive income			Total
	Common Stock			Treasury Stock										of continuing operations			of discontinued operations
	No. of Shares	Amount		No. of Shares	Amount
Balance at December 31, 2009 (as reported)	69,412	$	694	246	($	150	)	$	1,296,391		$	264,917		$	123,310		$	0		$	1,685,162
Impact of discontinued operations	—		—	—		—			—			—			(2,921	)		2,921			—
Balance at December 31, 2009 (as adjusted)	69,412		694	246		-150			1,296,391			264,917		$	120,389		$	2,921		$	1,685,162
Net income / (loss) for 2010	—		—	—		—			—			(23,364	)		—			—			(23,364	)
Foreign currency translation adjustment	—		—	—		—			—			—			37,789			(4,475	)		33,314
Common stock issued in public placement	—		—	—		—			(463	)		—			—			—			(463	)
Common stock issued in connection with options	102		1	—		—			2,072			—			—			—			2,073
Balance at March 31, 2010	69,514	$	695	246	($	150	)	$	1,298,000		$	241,553		$	158,178		($	1,554	)	$	1,696,722

The accompanying notes are an integral part of the consolidated condensed financial statements.

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CENTRAL EUROPEAN DISTRIBUTION CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (UNAUDITED)

Amounts in columns expressed in thousands

	Three months ended March 31,
	2010			2009 (as adjusted)
Cash flows from operating activities of continuing operations
Net income / (loss)	($	23,364	)	($	87,660	)
Adjustments to reconcile net income / (loss) to net cash provided by / (used in) operating activities:
Net income / (loss) from discontinued operations		34,873			(3,276	)
Depreciation and amortization		4,370			2,870
Deferred income taxes		(4,865	)		(18,701	)
Unrealized foreign exchange (gains) / losses		(35,478	)		90,197
Cost of debt extinguishment		14,114			—
Stock options expense		859			964
Equity income in affiliates		1,821			19,114
Other non cash items		8,576			1,279
Changes in operating assets and liabilities:
Accounts receivable		169,635			69,882
Inventories		(11,121	)		681
Prepayments and other current assets		(9,871	)		(5,097	)
Trade accounts payable		(34,494	)		(33,977	)
Other accrued liabilities and payables		(81,784	)		(41,103	)
Net cash provided by / (used in) operating activities from continuing operations		33,271			(4,827	)
Cash flows from investing activities of continuing operations
Investment in fixed assets		(1,306	)		(514	)
Proceeds from the disposal of fixed assets		—			611
Changes in restricted cash		481,419			—
Investment in trademarks		(6,000	)		—
Acquisitions of subsidiaries, net of cash acquired		(135,964	)		—
Net cash provided by investing activities from continuing operations		338,149			97
Cash flows from financing activities of continuing operations
Borrowings on bank loans and overdraft facility		18,568			8,771
Payment of bank loans, overdraft facility and other borrowings		(8,103	)		(10,716	)
Payment of Senior Secured Notes		(367,954	)		—
Hedge closure		—			(1,940	)
Movements in capital leases payable		9			(718	)
Transactions with equity holders		—			(7,876	)
Loan repayment from Whitehall Group		7,500			—
Options exercised		1,214			—
Net cash provided by / (used in) financing activities from continuing operations		(348,766	)		(12,479	)
Cash flows from discontinued operations
Net cash provided by / (used in) operating activities of discontinued operations		(9,303	)		1,495
Net cash provided by / (used in) investing activities of discontinued operations		328			(67	)
Net cash provided by / (used in) financing activities of discontinued operations		5,654			(2,143	)
Net cash used in discontinued operations		(3,321	)		(715	)
Adjustment to reconcile the change in cash balances of discontinued operations		3,321			715
Currency effect on brought forward cash balances		(881	)		(17,629	)
Net Increase / (Decrease) in Cash		21,773			(34,838	)
Cash and cash equivalents at beginning of period		126,439			107,601
Cash and cash equivalents at end of period	$	148,212		$	72,763
Supplemental Schedule of Non-cash Investing Activities
Common stock issued in connection with investment in subsidiaries	$	—		$	19,047
Supplemental disclosures of cash flow information
Interest paid	$	34,501		$	19,804
Income tax paid	$	5,678		$	2,568

The accompanying notes are an integral part of the consolidated condensed financial statements.

4

CENTRAL EUROPEAN DISTRIBUTION CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Amounts in tables expressed in thousands, except per share information

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Central European Distribution Corporation (“CEDC”), a Delaware corporation, and its subsidiaries (collectively referred to as “we,” “us,” “our,” or the “Company”) operate primarily in the alcohol beverage industry. The Company is Central Europe’s largest integrated spirit beverages business. The Company is also the largest vodka producer by value and volume in Poland and Russia and produces the Absolwent, Zubrowka, Bols, Parliament, Green Mark, Soplica and Zhuravli brands, among others. In addition, it produces and distributes Royal Vodka, the number one selling vodka in Hungary. As well as sales and distribution of its own branded spirits, the Company is the leading distributor and the leading importer of spirits, wine and beer in Poland and a leading exclusive importer of wines and spirits in Poland, Russia and Hungary. As disclosed further in Note 2 and Note 5, due to planned sale of its distribution business, the Company presented the distribution business as discontinued operations in these financial statements.

2. BASIS OF PRESENTATION

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. Our Company consolidates all entities that we control by ownership of a majority voting interest. All inter-company accounts and transactions have been eliminated in the consolidated financial statements, except for those between continuing operations and discontinued operations that are not shown as intercompany as these will be transactions with third party in the future.

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 accounting principles generally accepted in the United States of America (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 generally accepted accounting principles in the United States of America 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 cash flows for the interim periods presented have been included. Operating results for the three month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date except for presentation and disclosure requirements resulting from discontinued operations described in the paragraphs below as well as deconsolidation of Whitehall Group on the basis of requirements set forth in ASC 810, which both resulted in retrospective application, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The unaudited interim financial statements should be read with reference to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2009.

As a result of requirements set out in ASC 810, the Company changed the method of consolidation of Whitehall Group, in which the Company controls 49% of voting interest from consolidation to the equity method of accounting. This change was applied retrospectively to all the periods presented in the financial statements. Please refer to Note 4 for details.

For the purpose of financial reporting Management analyzed the requirements of U.S. GAAP (mainly ASC 360-10 PP&E and ASC 205-20 Presentation of Financial Statements) and concluded that as of March 31, 2010, the Company’s activities meet the required criteria and therefore it is necessary to present the Company’s its distribution business, explained below, as a component held for sale.

Table below presents the impact from change in presentation of the Company’s distribution business as discontinued operations as well as the impact of adoption of ASC Topic 810 in relation to Whitehall Group on the Consolidated Statements of Operations and Consolidated Balance Sheet of the Company as of December 31, 2009 in comparison to information previously filed in the Company’s Form 10-K for 2009.

5

	December 31, 2009 (as  adjusted)			Whitehall Group			Distribution business			December 31, 2009 (as  reported)
Total Current Assets		1,567,915			(121,629	)		73,414			1,616,130
Total Non-Current Assets		2,846,615			13,502			2,350			2,830,763
Total Current Liabilities		1,213,170			(85,238	)		74,155			1,224,253
Total Long Term Liabilities		1,516,198			—			1,608			1,514,590
Redeemable noncontrolling interests in Whitehall Group		—			(22,888	)		—			22,880
	Three months ended March  31, 2009 (as adjusted)			Whitehall Group (-)			Distribution business (-)			Three months ended March  31, 2009 (as reported)
Net Sales		70,772			26,706			120,414			217,892
Gross Profit		32,892			10,112			18,158			61,162
Operating Income		12,376			3,114			4,816			20,306
Income / (loss) before taxes, equity in net income from unconsolidated investments and noncontrolling interests in subsidiaries		(87,257	)		(4,387	)		3,828			(87,816	)
Income tax benefit / (expense)		17,075			1,041			(552	)		17,564
Less: Net (loss) attributable to redeemable noncontrolling interests in Whitehall Group		—			902			—			(902	)
Less: Net (loss) attributable to noncontrolling interests in subsidiaries		(111	)		—			—			(111	)
Equity in net earnings / (losses) of affiliates		(20,865	)		2,444			—			(18,421	)
Net income / (loss) from continuing operations attributable to CEDC	($	90,936	)	$	—		$	3,276		($	87,660	)
Income / (loss) on discontinued operations		3,276			—			(3,276	)		—
Net (loss)	($	87,660	)	$	—		$	—		($	87,660	)

3. ACQUISITIONS

Acquisitions made prior to December 31, 2008 were accounted for in accordance with SFAS No. 141, “Business Combinations.” Effective January 1, 2009, all business combinations are accounted for in accordance with FAS 141R that is codified as ASC Topic 805 “Business Combinations.”

The Russian Alcohol Acquisition

On January 20, 2010, after the receipt of antimonopoly clearances for the acquisition from the Russian Federal Antimonopoly Commission and the Antimonopoly Committee of Ukraine, the Company purchased the sole voting share of Lion/Rally Cayman 6 (“Cayman 6”) from an affiliate of Lion Capital LLP (“Lion Capital”) and thereby acquired control of the Russian Alcohol Group (“Russian Alcohol”). At the same time the Company settled $110 million of deferred consideration due to Lion by releasing $100 million from escrow and paying $10 million in cash.

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4. IMPACT OF ASC Topic 810 ON ACCOUNTING FOR WHITEHALL GROUP

In June 2009, the FASB issued new guidance on variable interest entities. ASU 2009-17, Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“VIE”), amends current guidance requiring an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. Determining who consolidates a VIE is based on two requirements:(i) who has the power over key decisions, and (ii) who has obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. If one party has both, then that party consolidates the entity. Power is based on who controls the decisions that most significantly impact the economic activities of the entity.

Except for the amount of $7.6 million that was lent at market rates as a working capital by the Company to the Whitehall Group, which was repaid in the first quarter of 2010, there were no transfers of financial assets to VIE as the Whitehall Group is a self financing body. The Company does not have any continuing involvement with transferred financial assets that allow the transferors to receive cash flows or other benefits from the assets or requires the transferors to provide cash flows or other assets in relation to the transferred financial assets.

According to the Whitehall Group shareholder’s agreement, Whitehall Group shall be under sole effective control of Mark Kaufman or one of his affiliates acting in the capacity of CEO. Mark Kaufman shall be responsible for the management and operations of Whitehall Group’s business, his actions in certain areas are, however, dependant on the consent of the board of directors.

ASU 2009-17 is effective for the Company from January 1, 2010. As a result of adoption ASC Topic 810, the Company considered the guidance and requirements set by ASC Topic 810. Since the day-to-day control over the business has been delegated to the CEO: Mark Kaufman and the list of activities which the Company can overview is limited, the Company decided to change accounting for its 49% voting interest in Whitehall Group from consolidation to the equity method of accounting.

Adoption of requirements of ASC Topic 810 resulted as of December 31, 2009 in net decrease in assets of $108 million, liabilities of $85 million and non-controlling interest of $23 million. Please refer to Note 2 for the disclosure of impact of adoption of ASC Topic 810 on the consolidated financial statements of the Company as of December 31, 2009.

5. DISCONTINUED OPERATIONS

For the purpose of financial reporting Management analyzed the requirements of US-GAAP (mainly ASC 360-10 PP&E and ASC 205-20 Presentation of Financial Statements) and concluded that as of March 31, 2010, the Company’s activities meet the required criteria defined in these standards and therefore it is necessary to present the Company’s its distribution business, explained below, as a component held for sale.

On April 8, 2010, the Company through its wholly owned subsidiary Carey Agri International Poland sp. z o.o. (“Carey Agri), entered into a Preliminary Agreement on Sale of Shares (the “Preliminary Agreement”) with Eurocash S.A. (“Eurocash”) pursuant to which (i) the Company agreed to sell all shares of Astor sp. z o.o., Dako-Galant Przedsiebiorstwo Handlowo Produkcyjne sp. z o.o., Damianex S.A., Delikates sp. z o.o., Miro sp. z o.o., MTC sp. z o.o., Multi-Ex S.A., Onufry S.A., Panta-Hurt sp. z o.o., Polskie Hurtownie Alkoholi sp. z o.o., Premium Distributors sp. z o.o., Przedsiebiorstwo Dystrybucji Alkoholi “Agis” S.A., Przedsiebiorstwo Handlu Spozywczego sp. z o.o. and Saol Dystrybucja sp. z o.o., representing 100% of the Company’s distribution business in Poland to Eurocash and (ii) Eurocash agreed to pay total consideration of 400 million Polish zlotys ($139.4 million) in cash, on a debt free, cash free basis, subject to potential price adjustments (if any) and Polish anti-trust approval (the “Total Consideration”). Under the terms of the Preliminary Agreement, the Total Consideration will be deposited into escrow to be released upon deletion of security by Eurocash; in any event, 75% of the Total Consideration will be released to the Company upon the lapse of 90 days from, and including, the transaction closing date.

In addition, On April 8, 2010, the Company also entered into a Distribution Agreement with Eurocash pursuant to which Eurocash will distribute the Company’s portfolio of brands and exclusive import brands in Poland for a period of six years.

Closing of the transaction is expected during the beginning of the third quarter 2010.

During the three month period ended March 31, 2010 the Company recorded an impairment charge related to goodwill upon the sale of the distribution business. The impairment charge related to goodwill of discontinued operations amounted to $28.2 million. The results of the distribution business are included in earnings from discontinued operations, net of taxes, for all periods presented. The net assets associated with the Polish distribution business, totaling approximately 400 million Polish zlotys ($139.4 million), were reclassified to assets and liabilities of discontinued operations at March 31, 2010.

7

The Company will continue to generate cash flows with distribution business after its sale to Eurocash as the Company has signed a six year agreement with Eurocash for the distribution of CEDC’s portfolio of own brands and exclusive import brands in Poland. Management concluded, however, that the significant portion of the sold distribution business was the sale of products other than CEDC’s. CEDC estimates that sales of the Company’s products through distribution network being subject of sale will not exceed 10% of the sales of the Company, on a consolidated basis. Management does not consider the cash flows expected to be generated under the distribution agreement with Eurocash will be considered significant in the future. Results of discontinued operations were as follows:

	Three months ended March 31,
	2010			2009
Net sales	$	155,018		$	120,414
Income / (loss) before taxes		(6,554	)		3,828
Income tax benefit / (expense)		(151	)		(552	)
Goodwill Impairment		(28,168	)		—
Income / (loss) on discontinued operations	($	34,873	)	$	3,276

The following table includes the consolidated assets and liabilities of the distribution business that have been segregated and classified as assets held for sale and liabilities related to assets held for sale, as appropriate, in the consolidated balance sheets as at March 31, 2010 and comparative data as at December 31, 2009. The amounts presented below were adjusted to exclude cash and intercompany receivables and payables between the business held for sale and the Company, which were excluded from the divestiture.

The Company has taken the impairment charge of $ 28.2 million to goodwill on its distribution business in order to bring it to fair value. These assets are not generating operating results or cash flows and were included in the consolidated balance sheet as assets held for sale at March 31, 2010.

	March 31, 2010		December  31, 2009
Cash	$	9,719	$	14,253
Trade receivables, less allowances		121,306		136,077
Inventories		72,553		104,391
Prepaid expenses and Other receivables		11,959		12,840
Total current assets		215,537		267,561
Plant and equipment, net		13,715		16,179
Goodwill		56,007		84,766
Intangible assets, net		826		833
Total noncurrent assets		70,548		101,778
Payables and accrued liabilities		127,419		178,902
Current portion long-term debt		21,348		15,859
Total current liabilities		148,767		194,761
Long-term debt		1,688		2,500
Other long term liabilities		—		320
Total noncurrent liabilities	$	1,688	$	2,820

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6. RESTRICTED CASH

On the balance sheet as of December 31, 2009 the Company disclosed restricted cash of $481 million that included €264 million (approximately US $381 million) as repayment of Senior Secured Notes due 2012 to be settled in 2010 and $100 million funded into escrow and recorded as Restricted Cash for the remaining obligations under the Russian Alcohol acquisition.

On January 4, 2010 the Company completed the redemption of its Senior Secured Notes due 2012 with the final payment of all outstanding principle, accrued interest and the call premium, releasing the cash of €263.9 million (approximately $381 million) and on January 11, 2010, the Company paid $100 million to Lion to settle the Russian Alcohol acquisition.

7. INTANGIBLE ASSETS OTHER THAN GOODWILL

The major components of intangible assets are:

	March 31, 2010			December 31, 2009
Non-amortizable intangible assets:
Trademarks	$	805,184		$	795,543
Impairment	($	22,432	)		(22,589	)
Total		782,752			772,954
Amortizable intangible assets:
Customer relationships		841			847
Less accumulated amortization		(623	)		(579	)
Total		218			268
Total intangible assets	$	782,970		$	773,222

Management considers trademarks that are indefinite-lived assets to have high or market-leader brand recognition within their market segments based on the length of time they have existed, the comparatively high volumes sold and their general market positions relative to other products in their respective market segments. These trademarks include Soplica, Zubrowka, Absolwent, Royal, Parliament, Green Mark, Zhuravli and the rights for Bols Vodka in Poland, Hungary and Russia. On February 8, 2010 the Company purchased the Urozhay IP rights for $6 million. Taking the above into consideration, as well as the evidence provided by analyses of vodka products life cycles, market studies, competitive and environmental trends, management believes that these brands will generate cash flows for an indefinite period of time, and that the useful lives of these brands are indefinite. In accordance with ASC Topic 350-30, intangible assets with an indefinite life are not amortized but are reviewed at least annually for impairment.

8. EQUITY METHOD INVESTMENTS IN AFFILIATES

We hold the following investments in unconsolidated affiliates:

		Carrying Value
	Type of affiliate	March 31, 2010		December 31, 2009
Whitehall Group	Equity-Accounted Affiliate		247,574		244,504
	Total Carrying value	$	247,574	$	244,504

The Company has effective voting interests of 49% in Whitehall Group and 25% in Moet Hennessy JV that is included in Whitehall Group. The investment in Whitehall Group is disclosed at fair value.

The summarized financial information of investments are shown in the below table with the balance sheet financial information reflecting Whitehall Group including Moet Hennessy Joint Venture consolidated under the equity method as of December 31, 2009. The results from operations for the three months ended March 31, 2009 include the results of Whitehall Group including the Moet Hennessy Joint Venture together with the results of Russian Alcohol that were consolidated under the equity method until April 24, 2009.

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	Total March 31, 2010			Total December 31, 2009
Current assets	$	73,706		$	129,737
Noncurrent assets		93,024			93,137
Current liabilities		42,582			86,067
Noncurrent liabilities		—			7,635
	Total Three months  ended March 31, 2010			Total Three months  ended March 31, 2009
Net sales	$	23,650		$	107,496
Gross profit		7,271			52,280
Income from continuing operations		(2,284	)		(45,603	)
Net income		(2,284	)		(45,603	)
Net income or loss attributable to the registrant		(1,821	)		(20,865	)

9. COMPREHENSIVE INCOME/(LOSS)

Comprehensive income/(loss) is defined as all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income/(loss) includes net income adjusted by, among other items, foreign currency translation adjustments and our proportionate share of the comprehensive income/ (loss) of our equity method affiliates. The foreign translation losses/gains on the re-measurements from foreign currencies to U.S. dollars are classified separately as a component of accumulated other comprehensive income included in stockholders’ equity.

As of March 31, 2010, our functional currencies (Polish zloty and Hungarian forint) used to translate the balance sheet weakened against the U.S. dollar as compared to the exchange rate as of December 31, 2009, and as a result a comprehensive loss was recognized that was compensated with an effect of appreciation of Russian ruble against the U.S. dollar.

10. 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,
	2010			2009
Basic:
Net income/(loss) from continuing operations attributable to CEDC shareholders	$	11,509		($	90,936	)
Income / (loss) on discontinued operations		(34,873	)		3,276
Net (loss)	($	23,364	)	($	87,660	)
Weighted average shares of common stock outstanding (used to calculate basic EPS)		69,194			47,916
Net effect of dilutive employee stock options based on the treasury stock method		426			81
Weighted average shares of common stock outstanding (used to calculate diluted EPS)		69,620			47,997
Net income / (loss) per common share - basic:
Continuing operations	$	0.17		($	1.90	)
Discontinued operations	($	0.50	)	$	0.07
	($	0.34	)	($	1.83	)
Net income / (loss) per common share - diluted:
Continuing operations	$	0.17		($	1.90	)
Discontinued operations	($	0.50	)	$	0.07
	($	0.34	)	($	1.83	)

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Employee stock options granted have been included in the above calculations of diluted earnings per share since the exercise price is less than the average market price of the common stock during the three month periods ended March 31, 2010 and 2009. In addition there is no adjustment to fully diluted shares related to the Convertible Senior Notes as the average market price was below the conversion price for the periods.

11. BORROWINGS

Bank Facilities

As of March 31, 2010, $25.4 million remained available under the Company’s overdraft facilities. These overdraft facilities are renewed on an annual basis.

As of March 31, 2010, the Company had utilized approximately $83.6 million of a multipurpose credit line agreement in connection with the 2007 tender offer in Poland to purchase the remaining outstanding shares of Polmos Bialystok S.A. The Company’s obligations under the credit line agreement are guaranteed through promissory notes by certain subsidiaries of the Company and are secured by 33.95% of the share capital of Polmos Bialystok S.A. The indebtedness under the credit line agreement of $62.7 million matures on February 24, 2011 and of $20.9 million on August 11, 2010.

On April 24, 2008, the Company signed a credit agreement with Bank Zachodni WBK SA in Poland to provide up to $50 million of financing to be used to finance a portion of the Parliament and Whitehall Group acquisitions, as well as general working capital needs of the Company. The agreement provides for a $30 million five year amortizing term facility and a one year $20 million short term facility with annual renewal. In the second quarter of 2009 this facility was converted into Polish zlotys. The maturity of term loan was extended to May 2013 and the maturity of the short term facility was extended to May 2010. The loan is guaranteed by the Company, Bols Sp. z o.o, a wholly owned subsidiary of the Company (“Bols”) and certain other subsidiaries of the Company, and is secured by all of the capital stock of Bols and 60% of the capital stock of Copecresto.

On July 2, 2008, the Company entered into a Facility Agreement with Bank Handlowy w Warszawie S.A., which provided for a term loan facility of $40 million, of which $26.7 million was outstanding as at March 31, 2010. The term loan matures on July 4, 2011 and is guaranteed by CEDC, Carey Agri and certain other subsidiaries of the Company and is secured by all of the shares of capital stock of Carey Agri and subsequently will be further secured by shares of capital stock in certain other subsidiaries of CEDC.

Senior Secured Notes due 2012

In connection with the Bols and Polmos Bialystok acquisitions, on July 25, 2005 the Company completed the issuance of €325 million 8% Senior Secured Notes due 2012 (the “2012 Notes”), of which approximately €245 million remained payable as of December 31, 2009. On January 4, 2010 the Company completed the redemption of its Senior Secured Notes due 2012 with the final payment of all outstanding principle, accrued interest and call premium, releasing the cash of €263.9 million (approximately $380.4 million), recorded in Restricted Cash at year end, from the trustee thus the relieving the Company of all of its remaining obligations under the Senior Secured Notes indenture.

As of December 31, 2009, the Company had accrued interest of $12.2 million respectively related to the 2012 Notes that was paid together with the principal amount and 4% premium on early repayment on January 4, 2010. Total obligations under the 2012 Notes are shown net of deferred finance costs, amortized over the life of the borrowings using the effective interest rate method as shown in the table below:

	March 31, 2010		December 31, 2009
Senior Secured Notes due 2012	$	—	$	365,989
Fair value bond mark to market		—		(301	)
Unamortized portion of closed hedges		—		(2,000	)
Unamortized issuance costs		—		(4,745	)
Total	$	—	$	358,943

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Convertible Senior Notes due 2013

On March 7, 2008, the Company completed the issuance of $310 million aggregate principal amount of 3% Convertible Senior Notes due 2013 (the “Convertible Senior Notes”). Interest is due semi-annually on the 15th of March and September, beginning on September 15, 2008. The Convertible Senior Notes are convertible in certain circumstances into cash and, if applicable, shares of our common stock, based on an initial conversion rate of 14.7113 shares per $1,000 principle amount, subject to certain adjustments. Upon conversion of the notes, the Company will deliver cash up to the aggregate principle amount of the notes to be converted and, at the election of the Company, cash and/or shares of common stock in respect to the remainder, if any, of the conversion obligation. The proceeds from the Convertible Senior Notes were used to fund the cash portions of the acquisition of Copecresto Enterprises Limited and Whitehall Group.

As of March 31, 2010 the Company had accrued interest of $0.4 million related to the Convertible Senior Notes, with the next coupon due for payment on September 15, 2010. As of December 31, 2009, accrued interest related to Convertible Senior Notes is presented together with the Convertible Senior Notes balance. Total obligations under the Convertible Senior Notes are shown net of deferred finance costs, amortized over the life of the borrowings using the effective interest rate method as shown in the table below:

	March 31, 2010			December 31, 2009
Convertible Senior Notes	$	310,386		$	312,711
Unamortized issuance costs		(3,934	)		(4,209	)
Debt discount related to Convertible Senior Notes		(11,657	)		(12,665	)
Total	$	294,795		$	295,837

Senior Secured Notes due 2016

On December 2, 2009, the Company issued and sold $380 million 9.125% Senior Secured Notes due 2016 and €380 million 8.875% Senior Secured Notes due 2016 in an offering to institutional investors that is exempt from registration under the U.S. Securities Act of 1933. The Company used a portion of the net proceeds from the Senior Secured Notes due 2016 to redeem the Company’s outstanding 8% Senior Secured Notes due 2012, having an aggregate principal amount of €245,440,000 on January 4, 2010. The remainder of the net proceeds from the Senior Secured Notes due 2016 was used to (i) purchase Lion Capital’s remaining equity interest in Russian Alcohol by exercising the Lion Option (described below) and the Co-Investor Option, pursuant to the terms and conditions of the Lion Option Agreement (described below) and the Co-Investor Option Agreement, respectively (ii) repay all amounts outstanding under Russian Alcohol credit facilities and (iii) repay certain other indebtedness.

As of March 31, 2010 and December 31, 2009 the Company had accrued interest of $26.5 million and $6.6 million respectively related to the Senior Secured Notes due 2016, with the next coupon due for payment on June 1, 2010. As of December 31, 2009, accrued interest related to Senior Secured Notes is presented together with the Senior Secured Notes balance. Total obligations under the Senior Secured Notes due 2016 are shown net of deferred finance costs, amortized over the life of the borrowings using the effective interest rate method as shown in the table below:

	March 31, 2010			December 31, 2009
Senior Secured Notes due 2016	$	917,830		$	934,410
Unamortized issuance costs		(24,688	)		(24,780	)
Total	$	893,142		$	909,630

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Total borrowings as disclosed in the financial statements are:

	March 31, 2010		December  31, 2009
Short term bank loans and overdraft facilities for working capital	$	70,828	$	60,000
Short term obligations under Senior Secured Notes		—		358,943
Short term bank loans for share tender		83,624		21,053
Total short term bank loans and utilized overdraft facilities		154,452		439,996
Long term bank loans for share tender		—		63,158
Long term obligations under Senior Secured Notes		893,142		909,630
Long term obligations under Convertible Senior Notes		294,795		295,837
Other total long term debt, less current maturities		36,439		42,885
Total debt	$	1,387,828	$	1,751,506

	March 31, 2010
Principal repayments for the following years
2010	$	85,115
2011		89,306
2012		6,588
2013		304,677
2014 and beyond		893,142
Total	$	1,378,828

12. INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or market value. Elements of cost include materials, labor and overhead and are classified as follows:

	March 31, 2010		December  31, 2009
Raw materials and supplies	$	30,323	$	31,220
In-process inventories		5,572		2,914
Finished goods and goods for resale		66,799		58,082
Total	$	102,694	$	92,216

Because of the nature of the products supplied by the Company, great attention is paid to inventory rotation. Where goods are estimated to be obsolete or unmarketable they are written down to a value reflecting the net realizable value in their relevant condition.

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Cost includes customs duty (where applicable), and all costs associated with bringing the inventory to a condition for sale. These costs include importation, handling, storage and transportation costs, and exclude rebates received from suppliers, which are reflected as reductions to closing inventory. Inventories are comprised primarily of beer, wine, spirits, packaging materials and non-alcoholic beverages.

13. INCOME TAXES

The Company operates in several tax jurisdictions primarily: the United States of America, Poland, Hungary and Russia. All subsidiaries file their own corporate tax returns as well as account for their own deferred tax assets and liabilities. The Company does not file a tax return in Delaware based upon its consolidated income, but does file a return in Delaware based on the statement of operations for transactions occurring in the United States of America. For income taxes accounted for on an interim basis, the Company estimates the annual effective tax rate and applies this rate to its Pre-tax US GAAP income, unless a discrete event occurs that requires additional consideration.

The Company previously adopted the provisions of ASC 740-10-25 “Income taxes.” ASC 740-10-25 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that fail to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC 740-10-25 also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. Adoption of ASC 740-10-25 did not have a significant impact on the Company’s financial statements. The Company is currently recognizing tax loss carry forwards in the United States at a 35% tax rate, which has the effect of reducing the overall effective tax rate below the 19% Polish statutory rate.

The Company files income tax returns in the U.S., Poland, Hungary, Russia, as well as in various other countries throughout the world in which we conduct our business. The major tax jurisdictions and their earliest fiscal years that are currently open for tax examinations are 2004 in the U.S., 2003 in Poland and Hungary and 2006 in Russia.

14. OPERATING SEGMENTS

The Company operates and manages its business based upon three primary segments: Poland, Russia and Hungary. Selected financial data split based upon this segmentation assuming elimination of intercompany revenues and profits is shown below: Segment information represents only continuing operations.

	Segment Net Sales Three months ended March 31,
	2010			2009
Segment
Poland	$	48,438		$	46,999
Russia		95,328			16,678
Hungary		6,040			7,095
Total Net Sales	$	149,806		$	70,772
	Operating Income Three  months ended March 31,
	2010			2009
Segment
Poland	$	10,040		$	10,890
Russia		16,167			3,145
Hungary		1,077			607
Corporate Overhead
General corporate overhead		(1,171	)		(1,302	)
Option Expense		(859	)		(964	)
Total Operating Income	$	25,254		$	12,376

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	Identifiable Operating Assets
	March 31, 2010		December 31, 2009
Segment
Poland	$	1,195,684	$	1,348,131
Russia		2,220,530		2,269,098
Hungary		29,094		38,643
Corporate		11,778		389,319
Total Identifiable Assets	$	3,457,086	$	4,045,191
	Goodwill
	March 31, 2010		December 31, 2009
Segment
Poland	$	399,236	$	402,433
Russia		1,092,656		1,074,314
Hungary		7,274		7,325
Corporate		—		—
Total Goodwill	$	1,499,166	$	1,484,072

15. INTEREST INCOME / (EXPENSE)

For the three months ended March 31, 2010 and 2009 respectively, the following items are included in Interest income / (expense):

	Three months ended March 31,
	2010			2009
Interest income	$	1,305		$	3,393
Interest expense		(26,981	)		(13,265	)
Total interest (expense), net	($	25,676	)	($	9,872	)

16. OTHER NON OPERATING INCOME / (EXPENSE)

For the three months ended March 31, 2010 and 2009, the following items are included in Other Non Operating Income / (Expense):

	Three months ended March 31,
	2010			2009
Early redemption call premium	($	14,115	)	$	—
Write-off of unamortized offering costs		(4,076	)		—
Other gains		201			581
Total other non operating income / (expense), net	($	17,990	)	$	581

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17. FINANCIAL INSTRUMENTS

Financial Instruments and Their Fair Values

Financial instruments consist mainly of cash and cash equivalents, accounts receivable, accounts payable, bank loans, overdraft facilities and long-term debt. The monetary assets represented by these financial instruments are primarily located in Poland, Hungary and Russia. Consequently, they are subject to currency translation risk when reporting in U.S. dollars.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

• Cash and cash equivalents—The carrying amount approximates fair value because of the short maturity of those instruments.

• Short term securities—This consists of FX options to protect against foreign exchange risk of payments related to term loans denominated in U.S. dollars in 2009. As of March 31, 2009 the change in fair value of options, based on the mark to market valuation, is recorded as a gain or loss in the consolidated statement of operations. As of March 31, 2010 the Company was not part of any hedge agreements.

• Bank loans, overdraft facilities and long-term debt—The fair value of the Company’s debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities.

18. FAIR VALUE MEASUREMENTS

The estimated fair values of the Company’s financial instruments are as follows:

	March 31, 2010
	Carrying Amount		Fair Value
Cash and cash equivalents	$	148,212	$	148,212
Equity method investment in affiliates		247,574		247,574
Bank loans, overdraft facilities and long-term debt		1,351,977		1,351,977
Current assets of discontinued operations		215,537		215,537
Non-current assets of discontinued operations		70,548		70,548
Current liabilities of discontinued operations		148,767		148,767
Non-current liabilities of discontinued operations		1,688		1,688

19. STOCK OPTION PLANS AND WARRANTS

The Company adopted ASC Topic 718 “Compensation—Stock Compensation” requiring the recognition of compensation expense in the Consolidated Condensed Statements of Income related to the fair value of its employee share-based options.

The Company recognizes the cost of all employee stock options on a straight-line attribution basis over their respective vesting periods, net of estimated forfeitures. The Company has selected the modified prospective method of transition; accordingly, prior periods have not been restated.

16

ASC Topic 718 requires the recognition of compensation expense in the Consolidated Condensed Statements of Operations related to the fair value of employee share-based options. Determining the fair value of share-based awards at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility and the expected dividends. Judgment is also required in estimating the amount of share-based awards expected to be forfeited prior to vesting. If actual forfeitures differ significantly from these estimates, share-based compensation expense could be materially impacted. Prior to adopting ASC Topic 718, the Company applied Accounting Principles Board (“APB”) Opinion No. 25, and related Interpretations, in accounting for its stock-based compensation plans. All employee stock options were granted at or above the grant date market price. Accordingly, no compensation cost was recognized for fixed stock option grants in prior periods.

A summary of the Company’s stock option and restricted stock units activity, and related information for the three month period ended March 31, 2010 is as follows:

Total Options	Number of Options		Weighted- Average Exercise Price
Outstanding at January 1, 2010	1,481,550		$	27.85
Granted	82,000		$	28.70
Exercised	(65,025	)	$	18.66
Forfeited	—		$	—
Outstanding at March 31, 2010	1,498,525		$	28.29
Exercisable at March 31, 2010	1,156,900		$	28.04
Nonvested restricted stock units	Number of Restricted Stock Units		Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2010	79,074		$	44.63
Granted	5,512		$	31.39
Vested	—		$	—
Forfeited	(1,681	)	$	41.35
Nonvested at March 31, 2010	82,905		$	43.85
Nonvested restricted stock	Number of Restricted Stock		Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2010	—		$	—
Granted	36,835		$	28.41
Vested	—		$	—
Forfeited	—		$	—
Nonvested at March 31, 2010	36,835		$	28.41

During the three months ended March 31, 2010, the range of exercise prices for outstanding options will be $1.13 to $60.92. During 2010, the weighted average remaining contractual life of options outstanding will be 5.1 years. Exercise prices for options exercisable as of March 31, 2010 ranged from $1.13 to $58.08. The Company has also granted 5,512 restricted stock units to its employees at an average price of $31.39.

The Company has issued stock options to employees under stock based compensation plans. Stock options are issued at the current market price, subject to a vesting period, which varies from one to three years. As of March 31, 2010, the Company has not changed the terms of any outstanding awards.

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During the three months ended March 31, 2010, the Company recognized compensation cost of $0.86 million and a related deferred tax asset of $0.14 million.

As of March 31, 2010, there was $4.12 million of total unrecognized compensation cost related to non-vested stock options and restricted stock units granted under the Plan. The costs are expected to be recognized over a weighted average period of 30 months through 2010-2013.

Total cash received from exercise of options during the three months ended March 31, 2010 amounted to $1.2 million.

For the three month period ended March 31, 2010, the compensation expense related to all options was calculated based on the fair value of each option grant using a binomial distribution model. The Company has never paid cash dividends and does not currently have plans to pay cash dividends, and thus has assumed a 0% dividend yield. Expected volatilities are based on an average of implied and historical volatility projected over the remaining term of the options. The expected life of stock options is estimated based on historical data on exercise of stock options, post-vesting forfeitures and other factors to estimate the expected term of the stock options granted. The risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expected life of the options. In addition, the Company applies an expected forfeiture rate when amortizing stock-based compensation expenses. The estimate of the forfeiture rates is based primarily upon historical experience of employee turnover. As individual grant awards become fully vested, stock-based compensation expense is adjusted to recognize actual forfeitures. The following weighted-average assumptions were used in the calculation of fair value:

	Three months ended March 31,
	2010	2009
Fair Value	$12.57	$8.07
Dividend Yield	0%	0%
Expected Volatility	68.2%	47.3% - 80.4%
Weighted Average Volatility	68.2%	57.6%
Risk Free Interest Rate	0.3% - 0.5%	0.4% - 0.5%
Expected Life of Options from Grant	3.2	3.2

20. COMMITMENTS AND CONTINGENT LIABILITIES

The Company is involved in litigation from time to time and has claims against it in connection with matters arising in the ordinary course of business. In the opinion of management, the outcome of these proceedings will not have a material adverse effect on the Company’s operations.

The Polmos Bialystok Acquisition

As part of the Share Purchase Agreement related to the October 2005 Polmos Bialystok Acquisition, the Company is required to ensure that Polmos Bialystok will make investments of at least 77.5 million Polish zloty during the six years after the acquisition was consummated. As of March 31, 2010, the Company had invested 72.3 million Polish zloty (approximately $25.2 million) in Polmos Bialystok.

The Whitehall Acquisition

As part of the Whitehall Acquisition, the Company entered into a shareholders’ agreement with the other shareholder pursuant to which the Company has the right to purchase, and the other shareholder has the right to require the Company to purchase, all (but not less than all) of the shares of Whitehall Group capital stock held by such shareholder. Either of these rights may be exercised at any time, subject, in certain circumstances, to the consent of third parties. The aggregate price that the Company would be required to pay in the event either of these rights is exercised will fall within a range, determined based on Whitehall Group’s EBIT as well as the EBIT of certain related businesses, during two separate periods: (1) the period from January 1, 2008 through the end of the year in which the right is exercised, and (2) the two full financial years immediately preceding the end of the year in which the right is exercised, plus, in each case, the time-adjusted value of any dividends paid by Whitehall Group. Subject to certain limited exceptions, the exercise price will be (A) no less than the future value as of the date of exercise of $32.0 million, and (B) no more than the future value as of the date of exercise of $89.0 million, plus, in each case, the time-adjusted value of any dividends paid by Whitehall Group.

In the event that the Company is required to refinance or retire the indebtedness described above, and/or acquires the capital stock of Whitehall Group, such transactions would be financed through additional sources of debt or equity funding. We cannot provide assurances as to whether or on what terms such funding would be available.

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The Russian Alcohol Acquisition

As part of the acceleration of the Option on December 9, 2009, related to the Russian Alcohol Acquisition (see Note 3), the company had a series of payment obligation payable in 2009 and 2010. As of March 31, 2010, the Company had remaining obligations under this agreement to Lion Capital for $45 million, which was settled in April 2010.

On January 11, 2010, the Company paid $110 million to Lion Capital as part of the acceleration of the Option Agreement (see Note 2) and on January 20, 2010 the Company purchased the sole voting share of Lion/Rally Cayman 6 from an affiliate of Lion Capital and thereby acquired full control of Russian Alcohol. The voting share comprised the remaining interest in Russian Alcohol that was not owned by the Company and was only available to the Company after the receipt of antimonopoly clearances for the acquisition from the Russian Federal Antimonopoly Commission and the Antimonopoly Committee of Ukraine, which the Company has since received.

Also as part of the November 2009 agreement with Lion Capital and Kylemore International Invest Corp. for the acquisition of Kylemore’s indirect equity interests in Russian Alcohol the Company paid $5.0 million in January 2010 and is to pay another $5.0 million on February 1, 2011 to Kylemore.

Supply Contracts

The Company has various agreements covering its sources of supply, which, in some cases, may be terminated by either party on relatively short notice. Thus, there is a risk that a portion of the Company’s supply of products could be curtailed at any time.

21. RELATED PARTY TRANSACTIONS

In January of 2005, the Company entered into a rental agreement for a facility located in northern Poland, which is 33% owned by the Company’s Chief Operating Officer. The monthly rent to be paid by the Company for this location is approximately $16,300 per month and relates to facilities to be shared by two subsidiaries of the Company.

During the three months of 2010, the Company made sales to a restaurant which is partially owned by the Chief Executive Officer of the Company. All sales were made on normal commercial terms, and total sales for the three months ended March 31, 2010 and 2009 were approximately $21,100 and $24,600, respectively.

22. SUBSEQUENT EVENTS

On April 8, 2010, the Company, entered into a Preliminary Agreement on Sale of Shares (the “Preliminary Agreement”) with Eurocash S.A. (“Eurocash”) pursuant to which (i) the Company agreed to sell all shares of Astor sp. z o.o., Dako-Galant Przedsiebiorstwo Handlowo Produkcyjne sp. z o.o., Damianex S.A., Delikates sp. z o.o., Miro sp. z o.o., MTC sp. z o.o., Multi-Ex S.A., Onufry S.A., Panta-Hurt sp. z o.o., Polskie Hurtownie Alkoholi sp. z o.o., Premium Distributors sp. z o.o., Przedsiebiorstwo Dystrybucji Alkoholi “Agis” S.A., Przedsiebiorstwo Handlu Spozywczego sp. z o.o. and Saol Dystrybucja sp. z o.o., representing 100% of the Company’s distribution business in Poland (the “Shares”), to Eurocash and (ii) Eurocash agreed to pay total consideration of 400 million PLN ($139.4 million) in cash, on a debt free, cash free basis, subject to potential price adjustments (if any) and Polish anti-trust approval (the “Total Consideration”). Under the terms of the Preliminary Agreement, the Total Consideration will be deposited into escrow to be released upon deletion of certain pledges from the Polish Register of Pledges; in any event, 75% of the Total Consideration will be released to the Company upon the lapse of 90 days from, and including, the closing date.

On April 8, 2010, the Company also entered into a Distribution Agreement with Eurocash pursuant to which Eurocash will distribute the Company’s portfolio of brands and exclusive import brands in Poland for a period of six years. CEDC plans to use this chain as well as other available distribution chains to sell its products, however, the Company does not consider the cash-flows to be generated from the agreement with Eurocash to be significant and believes that they will not exceed 10% of the sales of the Company.

On April 22, 2010, in accordance with the terms the Option Agreement dated November 19, 2009, the Company exercised its right to issue to Cayman 4 and Cayman 5, in settlement of consideration owed under the Lion Option Agreement, 799,330 shares and 278,745 shares, respectively, of the Company’s common stock. The Company claimed the exemption from registration contained in Section 4(2) of the Securities Act of 1933, in connection with the Share Issuance as the Share Issuance was a transaction by the issuer that did not involve a public offering. The impact of this share issuance was to repay $45 million of the $50 million of deferred consideration recorded as a liability as of March 31, 2010.

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23. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2009, the FASB issued ASC Topic 810, “Amendments to FASB Interpretation No. 46(R)” (“ASC 810”). ASC 810 is a revision to FIN 46(R) and changes how a company determines whether an entity should be consolidated when such entity is insufficiently capitalized or is not controlled by the company through voting (or similar rights). The determination of whether a company is required to consolidate an entity is based on, among other things, the entity’s purpose and design and the company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. ASC 810 retains the scope of FIN 46(R) but added entities previously considered qualifying special purpose entities, or QSPEs, since the concept of these entities is eliminated in ASC Topic 860. ASC 810 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2009. Based on an analysis of the requirements of this standard, as of March 31, 2010, the Company decided to change the consolidation method applied to Whitehall Group from full consolidation to consolidation under the equity method. This change was applied retrospectively starting from the inception and all comparative period information presented in these consolidated financial statements has been adjusted appropriately. For detailed information, refer to Note 4.

24. OFF-BALANCE SHEET ARRANGEMENTS

None

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following analysis should be read in conjunction with the Consolidated Condensed Financial Statements and the notes thereto appearing elsewhere in this report.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information.

This report contains forward-looking statements, which provide our current expectations or forecasts of future events. These forward-looking statements may be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “intends,” “may,” “will” or “should” or, in each case, their negative, or other variations or comparable terminology, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include, without limitation:

• information concerning possible or assumed future results of operations, trends in financial results and business plans, including those relating to earnings growth and revenue growth, liquidity, prospects, strategies and the industry in which the Company and its subsidiaries operate;

• statements about the level of our costs and operating expenses relative to the Company revenues, and about the expected composition of the Company’s revenues;

• statements about consummation, financing, results and integration of the Company’s acquisitions, including future acquisitions the Company may make;

• information about the impact of Polish and/or Russian regulations on the Company business;

• statements about local and global credit markets, currency exchange rates and economic conditions;

• other statements about the Company’s plans, objectives, expectations and intentions; and

• other statements that are not historical facts.

By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, the development of the industry in which we operate, and the effects of acquisitions on us may differ materially from those anticipated in or suggested by the forward-looking statements contained in this report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.

We urge you to read and carefully consider the items of the other reports that we have filed with or furnished to the SEC for a more complete discussion of the factors and risks that could affect us and our future performance and the industry in which we operate, including the risk factors described in the Company’s Current Report on Form 8-K filed with the SEC on July 13, 2009. In light of these risks, uncertainties and assumptions, the forward-looking events described in this report may not occur as described, or at all.

You should not unduly rely on these forward-looking statements, because they reflect our judgment only as of the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement to reflect circumstances or events after the date of this report, or to reflect on the occurrence of unanticipated events. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this report.

The following discussion and analysis provides information which management believes is relevant to the reader’s assessment and understanding of the Company’s results of operations and financial condition and should be read in conjunction with the Consolidated Financial Statements and the notes thereto found elsewhere in this report.

Overview

The Company is the world’s largest vodka producer and Central and Eastern Europe’s largest integrated spirit beverages business with its primary operations in Poland, Russia and Hungary. During 2009 the Company continued its investment strategy in Russia by restructuring its purchase agreement with Lion Capital in April, 2009 and subsequently buying out the remainder of Russian Alcohol in December, 2009. As a result, the Company began to consolidate the full activities of Russian Alcohol starting from the second quarter of 2009. Additionally the Company purchased the remaining minority interests in Parliament in Russia, thus acquiring full ownership of its vodka producing assets and brands.

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In connection with the completion of these investments the Company completed three capital raising initiatives comprised of two public equity offerings, with net proceeds of approximately $491 million, and a notes offering with net proceeds of approximately $930 million. The primary use of the equity proceeds was to fund the remaining buyout of Parliament and to partially fund the remaining buyout of Russian Alcohol. The proceeds from the notes offering were used to (i) fund a portion of the buyout of Russian Alcohol, (ii) to refinance approximately $390 million of the Company’s outstanding Senior Secured Notes due in 2012, and (iii) to refinance approximately $264 million of debt in place in Russian Alcohol. As a result of the notes offering the Company has extended the maturities of a significant portion of its debt to 2016 and settled the majority of its payment obligations to Lion Capital for the purchase of Russian Alcohol.

Significant factors affecting our consolidated results of operations

Effect of Acquisitions of Production Subsidiaries

During 2008 and 2009, the Company continued its acquisition strategy outside of Poland and Hungary with its investments into the production and importation of alcoholic beverages in Russia, completing a number of acquisitions and investments, as described below, all of which have had an impact on our consolidated results of operations beginning in the periods in which we first acquired an interest in the relevant entities.

Changes in Accounting Treatment

As described in Note 2 of the Consolidated Financial Statements, in June 2009, the FASB issued new guidance on variable interest entities. ASU 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, amends current guidance requiring an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. ASU 2009-17 is effective for the Company from January 1, 2010. As a result of adoption ASC Topic 810, the Company changed from consolidation to the equity method of accounting for its 49% voting interest in Whitehall Group on May 23, 2008. As a result of requirements set out in ASC 810, the Company changed the method of consolidation of Whitehall Group, in which the Company controls 49% of voting interest from consolidation to the equity method of accounting. This change was applied retrospectively to all the periods presented in the financial statements. Adoption of requirements of ASC Topic 810 resulted as of December 31, 2009 in net decrease in assets of $108 million, liabilities of $85 million and non-controlling interest of $23 million. The following management discussion and analysis is prepared on the basis of the adjusted balances for 2009 and therefore does not include the consolidated results of operations for the Whitehall Group.

Also as described in Footnote number 4 of the Consolidated Financial Statements, on April 8, 2010 the Company entered into a binding agreement to sell the shares of its Polish alcohol distribution business and based upon the application of ASC 205-20, has presented these companies as a held for sale asset. As a result, the sales and costs of the Polish distribution business are no longer reflected in the results of operations above net income from continuing operations in 2010. For comparability purposes this has been applied retroactively to 2009 and is reflected in the below management discussion and analysis.

The Russian Alcohol Acquisition

On July 9, 2008, the Company completed an investment with Lion Capital and certain of Lion Capital’s affiliates and certain other investors, pursuant to which the Company, Lion Capital and such other investors acquired all of the outstanding equity of Russian Alcohol. In connection with that investment, the Company acquired an indirect equity stake in Russian Alcohol of approximately 42%, and Lion Capital acquired substantially all of the remainder of the equity of Russian Alcohol. The agreements governing that investment gave the Company the right to acquire, and gave Lion Capital the right to require the Company to acquire, Lion Capital’s equity stake in Russian Alcohol (the “Prior Agreement”). On April 24, 2009, the Company entered into new agreements with Lion Capital to replace the Prior Agreement, which would permit the Company, through a multi-stage equity purchase, to acquire over the next five years (including 2009) all of the equity interests in Russian Alcohol held by Lion Capital.

As a result of these agreements, the Company assessed Russian Alcohol as a variable interest entity, with the Company being the primary beneficiary. Pursuant to this change, the Company began to consolidate Russian Alcohol as of the second quarter of 2009 and recorded a non-controlling interest of 9.4%, representing equity not held by the Company or Lion Capital. From the accounting perspective, the Company treated the acquisition of Russian Alcohol equity interests held by Lion Capital as if this acquisition had happened on April 24, 2009. As of this date CEDC recorded at fair value all future payments due under these agreements as a liability. The total present value of deferred consideration as of April 24, 2009, amounted to $447.2 million and was determined using a 14.5% discount rate. The present value of the liability was amortized over the period of time ending on the date the last payment is made which was initially expected to be in 2013, with recognition of a non cash interest expense every quarter in the statement of operations. The discount amortization charge for the period from April 24, 2009 to December 31, 2009 amounted to $38.5 million.

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On December 9, 2009 the Company accelerated the terms set up in the Lion Option Agreement and the Co-Investor Option Agreement, each dated April 24, 2009, and completed the Lion Option and the Co-Investor Option, respectively, thereby purchasing the remaining indirect equity interests in Cayman 6, less the sole voting share of Cayman 6, comprising the remaining equity interest in Russian Alcohol that was not owned by the Company, from affiliates of Lion Capital.

On January 20, 2010, after the receipt of antimonopoly clearances for the acquisition from the FAS and the Antimonopoly Committee of the Ukraine, the Company purchased the sole voting share of Cayman 6 from an affiliate of Lion Capital and thereby acquired control of Russian Alcohol. The Company began consolidating all profit and loss results for Russian Alcohol beginning April 1, 2009.

During 2009 and continuing this year, we have been active in integrating the recently acquired production companies into our Existing Operations. The acquisition and integration of these businesses into our operations have had a significant effect on our results of operations. As discussed below, these acquisitions have impacted our net sales, cost of goods sold, operating profit and equity earnings from affiliates.

Effect of Debt Refinancing

In December 2009, the Company issued new euro and U.S. dollar Senior Secured Notes due in 2016 with net proceeds of approximately $930 million. Of these proceeds approximately $380.4 million was used to redeem our previously outstanding Senior Secured Notes due in 2012. Notice of redemption was given in December, 2009 and the proceeds were funded to the trustee, however the actual repayment of the notes did not take place until January, 2010. Therefore, as at December 31, 2009, the full amounts of the Senior Secured Notes due 2012 remained as a short term liability and the cash funded to the trustee was on the balance as restricted cash. Additionally as a result of this the Company recognized interest expense in December, 2009 for both the new and old note issuances.

In the process of refinancing the debt of Russian Alcohol through the proceeds of the 2016 Notes, the Company recognized in 2009 a one-time charge of approximately $13.9 million related to the write-off of capitalized financing cost and net charge of $3 million related to the closure of hedges associated with the prior financing. These charges are reflected in Other Financial Expenses.

As these notes were funded in U.S. dollars and euro’s and lent to Polish zloty and Russian ruble reporting entities, the Company is exposed to exchange rate movements as described in the following section.

Effect of Exchange Rate and Interest Rate Fluctuations

Substantially all of Company’s operating cash flows and assets are denominated in Polish zloty, Russian ruble and Hungarian forint. This means that the Company is exposed to translation movements both on its balance sheet and statement of operations. The impact on working capital items is demonstrated on the cash flow statement as the movement in exchange on cash and cash equivalents. The impact on the statement of operations is by the movement of the average exchange rate used to restate the statement of operations from Polish zloty, Russian ruble and Hungarian forint to U.S. dollars. The amounts shown as exchange rate gains or losses on the face of the statement of operations relate only to realized gains or losses on transactions that are not denominated in Polish zloty, Russian ruble or Hungarian forint.

Because the Company’s reporting currency is the U.S. dollar, the translation effects of fluctuations in the exchange rate of our functional currencies have impacted the Company’s financial condition and results of operations and have affected the comparability of our results between financial periods.

The Company also has borrowings including its Convertible Notes due 2013 and Senior Secured Notes 2016 that are denominated in U.S. dollars and euro’s, which have been lent to its operations where the functional currency is the Polish zloty and Russian ruble. The effect of having debt denominated in currencies other than the Company’s functional currencies is to increase or decrease the value of the Company’s liabilities on that debt in terms of the Company’s functional currencies when those functional currencies depreciate or appreciate in value, respectively. As a result of this, the Company is exposed to gains and losses on the re-measurement of these liabilities. The table below summarizes the pre-tax impact of a one percent movement in each of the exchange rate which could result in a significant impact in the results of the Company’s operations.

Exchange Rate	Value of notional amount	Pre-tax impact of a 1% movement in exchange rate
USD-Polish zloty	$426 million	$4.3 million gain/loss
USD-Russian ruble	$264 million	$2.6 million gain/loss
EUR-Polish zloty	€380 million or approximately $511 million	$5.1 million gain/loss

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Results of Operations:

Three months ended March 31, 2010 compared to three months ended March 31, 2009

A summary of the Company’s operating performance (expressed in thousands except per share amounts) is presented below.

	Three months ended
	March 31, 2010			March 31, 2009 (as adjusted, see Note 2)
Sales	$	330,894		$	184,172
Excise taxes		(181,088	)		(113,400	)
Net Sales		149,806			70,772
Cost of goods sold		75,674			37,880
Gross Profit		74,132			32,892
Operating expenses		48,878			20,516
Operating Income		25,254			12,376
Non operating income / (expense), net
Interest (expense), net		(25,676	)		(9,872	)
Other financial income / (expense), net		34,912			(90,342	)
Other non operating income / (expense), net		(17,990	)		581
Income / (loss) before taxes, equity in net income from unconsolidated investments and noncontrolling interests in subsidiaries		16,500			(87,257	)
Income tax benefit / (expense)		(3,170	)		17,075
Less: Net (loss) attributable to noncontrolling interests in subsidiaries		—			(111	)
Equity in net earnings / (losses) of affiliates		(1,821	)		(20,865	)
Net income / (loss) from continuing operations attributable to CEDC	$	11,509		($	90,936	)
Discontinued operations
Income / (loss) from operations of distribution business (including impairment charge of $28.2 million)		(34,722	)		3,828
Income tax (expense)		(151	)		(552	)
Income / (loss) on discontinued operations		(34,873	)		3,276
Net (loss)	($	23,364	)	($	87,660	)
Net income / (loss) from continuing operations per share of common stock, basic	$	0.17		($	1.90	)
Net income / (loss) from discontinued operations per share of common stock, basic	($	0.50	)	$	0.07
Net (loss) from operations per share of common stock, basic	($	0.34	)	($	1.83	)
Net income / (loss) from continuing operations per share of common stock, diluted	$	0.17		($	1.90	)
Net income / (loss) from discontinued operations per share of common stock, diluted	($	0.50	)	$	0.07
Net (loss) from operations per share of common stock, diluted	($	0.34	)	($	1.83	)

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Net Sales

Net sales represent total sales net of all customer rebates, excise tax on production and exclusive imports and value added tax. Total net sales increased by approximately 111.6%, or $79.0 million, from $70.8 million for the three months ended March 31, 2009 to $149.8 million for the three months ended March 31, 2010. The increase was driven primarily by the consolidation of the Russian Alcohol resulting in an increase of $80 million. Our business split by segment, which represents our primary geographic locations of operations, Poland, Russia and Hungary, is shown below:

	Segment Net Sales Three months ended March 31,
	2010		2009
Segment
Poland	$	48,438	$	46,999
Russia		95,328		16,678
Hungary		6,040		7,095
Total Net Sales	$	149,806	$	70,772

Sales for Poland increased by $1.4 million from $47.0 million for the three months ending March 31, 2009 to $48.4 million for the three months ending March 31, 2010. This increase was driven by the strengthening of the Polish zloty against the U.S. dollar which resulted in an increase of approximately $9.3 million of sales in U.S. dollar terms. This increase was partially offset by a reduction of the sales from our vodka production units to our distribution companies of approximately $2.6 million and a decline in year on year sales of $5.2 which was driven by the overall soft economic environment and lower consumer spending. As the Polish distribution business is accounted for as a discontinued operation, sales to these entities are now recorded as third party sales in both periods. In anticipation of the sale of this business we have reduced inventory levels in the distribution companies to be more in line with our new distribution agreement with Eurocash. This resulted in the $2.6 million sales reduction noted above. In terms of the overall vodka market in Poland, we estimate that the overall vodka market has declined by 7%-9% in volume terms in the first quarter of 2010.

Sales for Russia increased by $78.7 million from $16.7 million for the three months ending March 31, 2009 to $95.3 million for the three months ending March 31, 2010. This increase was driven a combination of the strengthening of the Russian ruble against the U.S. dollar which accounted for approximately $2.3 million of the increase and the consolidation of the Russian Alcohol which was completed in April 2009, which accounted for approximately $80.0 million of the increase. The remaining difference represents a decline in year on year sales of $3.6 million (which represents a 4% decline over prior year sales after including the Russian Alcohol first quarter 2009 sales in total sales for that period) which was driven by the overall economic slowdown that took place in Russia with consumers continuing to spend less and trade down to lower priced products. We estimate that the overall vodka market in Russia was also down by 7%-9% in volume terms.

The Hungarian sales decline was driven mainly by the soft consumer environment and an excise tax increase on January 1, 2010.

Gross Profit

Total gross profit increased by approximately 125.2%, or $41.2 million, to $74.1 million for the three months ended March 31, 2010, from $32.9 million for the three months ended March 31, 2009, reflecting the increase in gross profit margins percentage in the three months ended March 31, 2009. Gross margin increased from 46.5% of net sales for the three months ended March 31, 2009 to 49.5% of net sales for the three months ended March 31, 2010. The primary factor resulting in the improved margin was the inclusion of the results of the Russian Alcohol, which operated at higher gross profit margin percentage the other businesses in the Group.

Operating Expenses

Operating expenses consist of selling, general and administrative, or “S,G&A” expenses, advertising expenses, non-production depreciation and amortization, and provision for bad debts. Operating expenses as a percent of net sales increased from 29% for the three months ended March 31, 2009 to 32.6% for the three months ended March 31, 2010. Total operating expenses increased by $28.4 million, from $20.5 million for the three months ended March 31, 2009 to $48.9 million for the three months ended March 31,

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2010. The 2009 cost base was increased by the consolidation of Russian Alcohol which increased the cost base by $31.5 million for the three months ended March 31, 2010 and the impact of foreign exchange which increased operating expenses by $3.2 million. This adjusted cost base of $55.2 was then reduced by year on year costs savings of approximately $6.3 million. The table below sets forth the items of operating expenses.

	Three Months Ended March 31,
	2010		2009
	($ in thousands)
S,G&A	$	41,813	$	14,352
Marketing		4,776		4,405
Depreciation and amortization		2,289		1,759
Total operating expense	$	48,878	$	20,516

S,G&A consists of salaries, warehousing and transportation costs, administrative expenses and bad debt expense. S,G&A increased by approximately 190.3%, or $27.4 million, from $14.4 million for the three months ended March 31, 2009 to $41.8 million for the three months ended March 31, 2010. The change in total SG&A was primarily caused by the factors mentioned above, namely the consolidation of Russian Alcohol and the impact of foreign exchange rates lowered by cost savings initiatives.

Depreciation and amortization increased by approximately 27.8%, or $ 0.5 million, from $1.8 million for the three months ended March 31, 2009 to $2.3 million for the three months ended March 31, 2010 due to the impact of foreign exchange translation.

Operating Income

Total operating income increased by approximately 104.0%, or $12.9 million, from $12.4 million for the three months ended March 31, 2009 to $25.3 million for the three months ended March 31, 2010, primarily driven by the inclusion of Russian Alcohol in the results for the three months ended March 31, 2010. The table below summarizes the segmental split of operating profit.

	Operating Income Three  months ended March 31,
	2010			2009
Segment
Poland	$	10,040		$	10,890
Russia		16,167			3,145
Hungary		1,077			607
Corporate Overhead
General corporate overhead		(1,171	)		(1,302	)
Option Expense		(859	)		(964	)
Total Operating Income	$	25,254		$	12,376

Operating income in Poland remained constant with lower sales, as described above, offset by the impact of appreciation of the Polish Zloty of $2.2 million and costs savings in Poland of $2.4 million.

The operating income in Russia increased by $13 million, driven by the consolidation of Russian Alcohol which contributed $12.8 million for the three months ending March 31, 2010, cost savings of $3.2 million and the appreciation of the Russian Ruble of $0.4 million. These increases we partially offset by lower sales volume as described above.

In Hungary operating income margins increased primarily due to the strength of the Hungarian Forint which resulted in improved margins as the majority of Hungary’s represent imports which are purchased in Euro’s.

Non Operating Income and Expenses

Total interest expense increased by approximately 159.6%, or $15.8 million, from $9.9 million for the three months ended March 31, 2009 to $25.7 million for the three months ended March 31, 2010. This increase is mainly a result of the additional interest from Senior Secured Notes due 2016 of $19.8 million. The incremental borrowings were used primarily to finance the remaining buy out of the Russian Alcohol which was completed in January 2010.

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The Company recognized $34.9 million of unrealized foreign exchange rate gains in the three months ended March 31, 2010, primarily related to the impact of movements in exchange rates on our U.S. dollar and euro denominated liabilities, as compared to $90.3 million of losses in the three months ended March 31, 2009. This gain resulted from the strengthening of the Polish Zloty and Russian Ruble against the U.S. dollar and Euro.

Income Tax

Our effective tax rate for the three months ending March 31, 2010 was 19.2%, which is driven by the blended statutory tax rates rate of 19% in Poland and 20% in Russia.

Equity in Net Earnings

Equity in net earnings for the three months ending March 31, 2010 include Company’s proportional share of net income from its investments in the Whitehall Group.

Liquidity and Capital Resources

The Company’s primary uses of cash in the future will be to fund its working capital requirements, service indebtedness, finance capital expenditures and fund acquisitions including pursuant to existing arrangements described under “The Company’s Future Liquidity and Capital Resources”. The Company expects to fund these requirements in the future with cash flows from its operating activities, cash on hand, the financing arrangements described below, and other arrangements we may enter into from time to time.

Financing Arrangements

Existing Credit Facilities

As of March 31, 2010, $25.4 million remained available under the Company’s overdraft facilities. These overdraft facilities are renewed on an annual basis.

As of March 31, 2010, the Company had utilized approximately $83.6 million of a multipurpose credit line agreement in connection with the 2007 tender offer in Poland to purchase the remaining outstanding shares of Polmos Bialystok S.A. The Company’s obligations under the credit line agreement are guaranteed through promissory notes by certain subsidiaries of the Company and are secured by 33.95% of the share capital of Polmos Bialystok S.A. The indebtedness under the credit line agreement of $62.7 million and of $20.9 million matures on February 24, 2011 and on August 11, 2010, respectively.

On April 24, 2008, the Company signed a credit agreement with Bank Zachodni WBK SA in Poland to provide up to $50 million of financing to be used to finance a portion of the Parliament and Whitehall acquisition, as well as general working capital needs of the Company. The agreement provides for a $30 million five year amortizing term facility and a one year $20 million short term facility with annual renewal. In the second quarter of 2009 this facility was converted into Polish zlotys. The maturity of term loan was extended to May 2013 and the maturity of the short term facility was extended to May 2010. The loan is guaranteed by the Company, Bols Sp. z o.o, a wholly owned subsidiary of the Company (“Bols”) and certain other subsidiaries of the Company, and is secured by all of the capital stock of Bols and 60% of the capital stock of Copecresto.

On July 2, 2008, the Company entered into a Facility Agreement with Bank Handlowy w Warszawie S.A., which provided for a term loan facility of $40 million, of which $26.7 million was outstanding as at March 31, 2010. The term loan matures on July 4, 2011 and is guaranteed by CEDC, Carey Agri and certain other subsidiaries of the Company and is secured by all of the shares of capital stock of Carey Agri and subsequently will be further secured by shares of capital stock in certain other subsidiaries of CEDC.

Senior Secured Notes due 2012

In connection with the Bols and Polmos Bialystok acquisitions, on July 25, 2005 the Company completed the issuance of €325 million 8% Senior Secured Notes due 2012 (the “2012 Notes”), of which approximately €245 million remained payable as of December 31, 2009. On January 4, 2010 the Company completed the redemption of its Senior Secured Notes due 2012 with the final payment of all outstanding principle, accrued interest and call premium, when the trustee released the cash of €263.9 million (approximately $380.4 million), recorded in Restricted Cash at year end, thus the relieving the Company of all of its remaining obligations under the Senior Secured Notes indenture.

On January 4, 2010 the Company completed the redemption of its Senior Secured Notes due 2012 with the final payment of all outstanding principle, accrued interest and call premium, releasing the cash of €263.9 million (approximately $380.4 million).

Convertible Senior Notes due 2013

On March 7, 2008, the Company completed the issuance of $310 million aggregate principal amount of 3% Convertible Senior Notes due 2013 (the “Convertible Notes”). Interest is due semi-annually on the 15th of March and September, beginning on September 15, 2008. The Convertible Senior Notes are convertible in certain circumstances into cash and, if applicable, shares of our

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common stock, based on an initial conversion rate of 14.7113 shares per $1,000 principle amount, subject to certain adjustments. Upon conversion of the notes, the Company will deliver cash up to the aggregate principle amount of the notes to be converted and, at the election of the Company, cash and/or shares of common stock in respect to the remainder, if any, of the conversion obligation. The proceeds from the Convertible Notes were used to fund the cash portions of the acquisition of Copecresto Enterprises Limited and Whitehall Group.

Senior Secured Notes due 2016

On December 2, 2009, the Company issued and sold $380 million 9.125% Senior Secured Notes due 2016 and €380 million 8.875% Senior Secured Notes due 2016 in an offering to institutional investors that is exempt from registration under the U.S. Securities Act of 1933. The Company used a portion of the net proceeds from the Senior Secured Notes due 2016 to redeem the Company’s outstanding 8% Senior Secured Notes due 2012. The remainder of the net proceeds from the Senior Secured Notes due 2016 was used to (i) purchase Lion Capital’s remaining equity interest in Russian Alcohol by exercising the Lion Option and the Co-Investor Option, pursuant to the terms and conditions of the Lion Option Agreement and the Co-Investor Option Agreement, respectively (ii) repay all amounts outstanding under Russian Alcohol credit facilities and (iii) repay certain other indebtedness.

Statement of Liquidity and Capital Resources

During the period under review, the Company’s primary sources of liquidity were cash flows generated from operations, credit facilities and proceeds from options exercised. The Company’s primary uses of cash were to fund its working capital requirements, service indebtedness, finance capital expenditures and fund acquisitions. The following table sets forth selected information concerning the Company’s consolidated cash flow during the periods indicated.

	Three months ended March 31, 2010			Three months ended March 31, 2009
	($ in thousands)
Cash flow from operating activities	$	33,271		$	(4,827	)
Cash flow from investing activities	$	338,149		$	97
Cash flow from financing activities	$	(348,766	)	$	(12,479	)

Net cash flow from operating activities

Net cash flow from operating activities represents net cash from operations and interest. Net cash provided by operating activities for the three months ended March 31, 2010 was $33.3 million as compared to cash utilization of $4.8 million for the three months ended March 31, 2009. Working capital movements included $32.4 million of cash inflows for the three months ended March 31, 2010 as compared to $9.6 million of cash outflows for the three months ended March 31, 2009. The primary driver for this was the improvement in receivables collection process which generated $169.6 million of cash inflows in 2010 as compared to $69.9 million in 2009.

Net cash flow used in investing activities

Net cash flows used in investing activities represent net cash used to acquire subsidiaries and fixed assets as well as the release of cash from escrow. Net cash outflows for the three months ended March 31, 2010 was $338.1 million. In December 2009, the Company funded into escrow a portion of the proceeds from the 2016 Senior Note issued to be used to repay the 2012 Senior Notes as well as the remaining cash portion of the deferred consideration to Lion Capital related to the acquisition of Russian Alcohol. These funds were then released in January 2010 resulting in a cash inflow from restricted cash of $481.3 million. The $135.9 million of cash out flow primarily represents the remaining cash obligations paid as a result of the final buy out of Russian Alcohol completed in January 2010, of which $100 million came from the release of restricted cash. Additionally $6 million of cash was used to purchase the Urozhay trade mark in Russia.

Net cash flow from financing activities

Net cash flow from financing activities represents cash used for servicing indebtedness, borrowings under credit facilities and cash inflows from private placements and exercise of options. Net cash used in financing activities was $348.8 million for the three months ended March 31, 2010 as compared to $12.5 million for the three months ended March 31, 2009. The primary uses in the three months ended March 31, 2010 were repayment of 2012 Senior Notes for $367.9 million which includes $353.8 million of principle and 4% early redemption premium of $14.1 million. The cash inflow of $7.5 million represents the loan repayment from the Whitehall Group, an equity investment of the Company.

The Company’s Future Liquidity and Capital Resources

The Company’s primary uses of cash in the future will be to fund its working capital requirements, service indebtedness, finance capital expenditures and fund acquisitions, including pursuant to existing arrangements described below. The Company expects to

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fund these requirements in the future with cash flows from its operating activities, cash on hand, the financing arrangements described above and other financing arrangements it may enter into from time to time. However, recent significant changes in market liquidity conditions resulting in a tightening in the credit markets and a reduction in the availability of debt and equity capital could impact our access to funding and our related funding costs (and we cannot provide assurances as to whether or on what terms such funding would be available), which could materially and adversely affect our ability to obtain and manage liquidity, to obtain additional capital and to restructure or refinance any of our existing debt.

Whitehall Acquisition

On May 23, 2008, the Company and certain of its affiliates, entered into, and closed upon, a Share Sale and Purchase Agreement and certain other agreements whereby the Company acquired shares representing 50% minus one vote of the voting power, and 75% of the economic interests, in the Whitehall Group. The Whitehall Group is a leading importer of premium spirits and wines in Russia. The aggregate consideration paid by the Company was $200 million, paid in cash at the closing. In addition, on October 21, 2008 the Company issued to the Seller 843,524 shares of its common stock, par value $0.01 per share.

On February 24, 2009, the Company and the seller amended the terms of the Stock Purchase Agreement governing the Whitehall acquisition to satisfy the Company’s obligations to the seller pursuant to a share price guarantee in the original Stock Purchase Agreement. Pursuant to the terms of this amendment, the Company paid to the seller $5,876,351 in cash, and issued to the seller 2,100,000 shares of its common stock, in settlement of a minimum share price guarantee by the Company, and later made an additional cash payment of $2,000,000 on March 15, 2009. The first portion of deferred payments already due under the original Stock Purchase Agreement amounting to €8,050,411 was paid on August 4, 2009 and the remaining portion of €8,303,630 was paid on September 15, 2009. In consideration for these payments, the Company received an additional 375 Class B shares of Whitehall Group, which represents an increase in the Company’s economic stake from 75% to 80%.

Pursuant to the Whitehall Group shareholders’ agreement, Polmos Bialystok has the right to purchase, and the other shareholder has the right to require Polmos Bialystok to purchase, all (but not less than all) of the shares of Whitehall Group capital stock held by such shareholder. Either of these rights may be exercised at any time, subject, in certain circumstances, to the consent of third parties. The aggregate price that the Company would be required to pay in the event either of these rights is exercised will fall within a range determined based on Whitehall Group’s EBIT as well as the EBIT of certain related businesses, during two separate periods: (1) the period from January 1, 2008 through the end of the year in which the right is exercised, and (2) the two full financial years immediately preceding the end of the year in which the right is exercised, plus, in each case, the time-adjusted value of any dividends paid by Whitehall Group. Subject to certain limited exceptions, the exercise price will be (A) no less than the future value as of the date of exercise of $32.0 million and (B) no more than the future value as of the date of exercise of $89.0 million, plus, in each case, the time-adjusted value of certain dividends paid by Whitehall Group.

Effects of Inflation and Foreign Currency Movements

Inflation in Poland is projected at 2.3% for 2010, compared to actual inflation of 3.5% in 2009. In Russia and Hungary respectively, the projected inflation for 2010 is at 6.9% and 4.4%, compared to actual inflation of 8.8% and 5.6% in 2009.

Substantially all of Company’s operating cash flows and assets are denominated in Polish zloty, Russian ruble and Hungarian forint. This means that the Company is exposed to translation movements both on its balance sheet and statement of operations. The impact on working capital items is demonstrated on the cash flow statement as the movement in exchange on cash and cash equivalents. The impact on the statement of operations is by the movement of the average exchange rate used to restate the statement of operations from Polish zloty, Russian ruble and Hungarian forint to U.S. dollars. The amounts shown as exchange rate gains or losses on the face of the statement of operations relate only to realized gains or losses on transactions that are not denominated in Polish zloty, Russian ruble or Hungarian forint.

Because the Company’s reporting currency is the U.S. dollar, the translation effects of fluctuations in the exchange rate of our functional currencies have impacted the Company’s financial condition and results of operations and have affected the comparability of our results between financial periods.

The Company has borrowings including its Convertible Notes due 2013 and Senior Secured Notes due 2016 that are denominated in U.S. dollars and euros, which have been lent to its operations where the functional currency is the Polish zloty and Russian ruble. The effect of having debt denominated in currencies other than the Company’s functional currencies is to increase or decrease the value of the Company’s liabilities on that debt in terms of the Company’s functional currencies when those functional currencies depreciate or appreciate in value respectively. As a result of this, the Company is exposed to gains and losses on the re-measurement of these liabilities. The table below summarizes the pre-tax impact of a one percent movement in each of the exchange rate which could result in a significant impact in the results of the Company’s operations.

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Exchange Rate	Value of notional amount	Pre-tax impact of a 1% movement in exchange rate
USD-Polish zloty	$426 million	$4.3 million gain/loss
USD-Russian ruble	$264 million	$2.6 million gain/loss
EUR-Polish zloty	€380 million or approximately $511 million	$5.1 million gain/loss

Critical Accounting Policies and Estimates

General

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of net sales, expenses, assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.

Revenue Recognition

Revenues of the Company include sales of its own produced spirit brands, imported wine, beer and spirit brands as well as other third party alcoholic products purchased locally in Poland, the sale of each of these revenues streams are all processed and accounted for in the same manner. For all of its sources of revenue, the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery of product has occurred, the sales price charged is fixed or determinable and collectability is reasonably assured. This generally means that revenue is recognized when title to the products are transferred to our customers. In particular, title usually transfers upon shipment to or receipt at our customers’ locations, as determined by the specific sales terms of the transactions.

Sales are stated net of sales tax (VAT) and reflect reductions attributable to consideration given to customers in various customer incentive programs, including pricing discounts on single transactions, volume discounts, promotional listing fees and advertising allowances, cash discounts and rebates. Net sales revenue includes excise tax except in the case where the sales are made from the production unit, in which case it is recorded net of excise tax.

Goodwill and Intangibles

Following the adoption of ASC Topic 805 and ASC Topic 350, goodwill and certain intangible assets having indefinite lives are no longer subject to amortization. Their book values are tested annually for impairment, or more frequently, if facts and circumstances indicate the need. Fair value measurement techniques, such as the discounted cash flow methodology, are utilized to assess potential impairments. The testing is performed at each reporting unit level. In the discounted cash flow method, the Company discounts forecasted performance plans to their present value. The discount rate utilized is the weighted average cost of capital for the reporting unit. US GAAP requires the impairment test to be performed in two stages. If the first stage does not indicate that the carrying values of the reporting units exceed the fair values, the second stage is not required. When the first stage indicates potential impairment, the company has to complete the second stage of the impairment test and compare the implied fair value of the reporting units’ goodwill to the corresponding carrying value of goodwill.

Intangibles are amortized over their effective useful life. In estimating fair value, management must make assumptions and projections regarding such items as future cash flows, future revenues, future earnings, and other factors. The assumptions used in the estimate of fair value are generally consistent with the past performance of each reporting unit and are also consistent with the projections and assumptions that are used in current operating plans. Such assumptions are subject to change as a result of changing economic and competitive conditions. If these estimates or their related assumptions change in the future, the Company may be required to record an impairment loss for the assets. The fair values calculated have been adjusted where applicable to reflect the tax impact upon disposal of the asset.

In connection with the Bols, Polmos Bialystok, Parliament and Russian Alcohol acquisitions, the Company has acquired trademark rights to various brands, which were capitalized as part of the purchase price allocation process. As these brands are well established they have been assessed to have an indefinite life. These trademarks rights will not be amortized; however, management assesses them at least once a year for impairment.

The Company tested goodwill for impairment Domestic Distribution that disclosed as discontinued operations in the financial statements as at March 31, 2010. In order to present the discontinued operations at fair value we have recognized in the three month period ended March 31, 2010 an impairment charge of $ 28.2 million that was included in the results of the discontinued operations presented in the condensed consolidated statement of operations.

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Taking into account current estimations supporting our calculations under current market trends and conditions we believe that no further impairment charge is considered necessary through the date of the accompanying financial statements.

Accounting for Business Combinations

The acquisition of businesses is an important element of the Company’s strategy. Acquisitions made prior to December 31, 2008 were accounted for in accordance with SFAS No. 141, “Business Combinations” (“SFAS 141”). Effective January 1, 2009, all business combinations will be accounted for in accordance with ASC Topic 805 “Business Combinations”.

We account for our acquisitions made in 2008 under the purchase method of accounting in accordance with SFAS 141, Business Combinations, and allocate the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The determination of the values of the assets acquired and liabilities assumed, as well as associated asset useful lives, requires management to make estimates. The Company’s acquisitions typically result in goodwill and other intangible assets; the value and estimated life of those assets may affect the amount of future period amortization expense for intangible assets with finite lives as well as possible impairment charges that may be incurred.

The calculation of purchase price allocation requires judgment on the part of management in determining the valuation of the assets acquired and liabilities assumed.

Derivative Instruments

The Company is exposed to market movements from changes in foreign currency exchange rates that could affect the Company’s results of operations and financial condition. In accordance with ASC Topic 815 “Derivatives and Hedging”, the Company recognizes all derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value.

The fair values of the Company’s derivative instruments can change with fluctuations in interest rates and/or currency rates and are expected to offset changes in the values of the underlying exposures. The Company’s derivative instruments are held to hedge economic exposures. The Company follows internal policies to manage interest rate and foreign currency risks, including limitations on derivative market-making or other speculative activities.

At the inception of a transaction the Company documents the relationship between the hedging instruments and hedged items, as well as its risk management objective. This process includes linking all derivatives designated to specific firm commitments or forecasted transitions. The Company also documents its assessment, both at the hedge inception and on an ongoing basis, of whether the derivative financial instruments that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of hedged items.

Share Based Payments

As of January 1, 2006, the Company adopted ASC Topic 718 “Compensation – Stock Compensation” requiring the recognition of compensation expense in the Condensed Consolidated Statements of Income related to the fair value of its employee share-based options.

Grant-date fair value of stock options is estimated using a lattice-binomial option-pricing model. We recognize compensation cost for awards over the vesting period. The majority of our stock options have a vesting period between one to three years.

See Note 19 to our Consolidated Financial Statements for more information regarding stock-based compensation.

Recently Issued Accounting Pronouncements

In June 2009, the FASB issued ASC Topic 810, “Amendments to FASB Interpretation No. 46(R)” (“ASC 810”). ASC 810 is a revision to FIN 46(R) and changes how a company determines whether an entity should be consolidated when such entity is insufficiently capitalized or is not controlled by the company through voting (or similar rights). The determination of whether a company is required to consolidate an entity is based on, among other things, the entity’s purpose and design and the company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. ASC 810 retains the scope of FIN 46(R) but added entities previously considered qualifying special purpose entities, or QSPEs, since the concept of these entities is eliminated in ASC Topic 860. ASC 810 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2009. Based on the analysis of requirements of this standard, as of March 31, 2010, the Company decided to change the consolidation method of Whitehall Group from full consolidation to consolidation under the equity method. This change was applied retrospectively starting from the inception and all comparative period information presented in these consolidated financial statements have been adjusted appropriately.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our operations are conducted primarily in Poland and Russia and our functional currencies are primarily the Polish zloty, Hungarian forint and Russian ruble and the reporting currency is the U.S. dollar. Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, inventories, bank loans, overdraft facilities and long-term debt. All of the monetary assets represented by these financial instruments are located in Poland, Russia and Hungary. Consequently, they are subject to currency translation movements when reporting in U.S. dollars.

If the U.S. dollar increases in value against the Polish zloty, Russian ruble or Hungarian forint, the value in U.S. dollars of assets, liabilities, revenues and expenses originally recorded in Polish zloty, Russian ruble or Hungarian forint will decrease. Conversely, if the U.S. dollar decreases in value against the Polish zloty, Russian ruble or Hungarian forint, the value in U.S. dollars of assets, liabilities, revenues and expenses originally recorded in Polish zloty, Russian ruble or Hungarian forint will increase. Thus, increases and decreases in the value of the U.S. dollar can have a material impact on the value in U.S. dollars of our non-U.S. dollar assets, liabilities, revenues and expenses, even if the value of these items has not changed in their original currency.

The Company has borrowings including its Convertible Notes due 2013 and Senior Secured Notes 2016 that are denominated in U.S. dollars and euro’s, which have been lent to its operations where the functional currency is the Polish zloty and Russian ruble. The effect of having debt denominated in currencies other than the Company’s functional currencies is to increase or decrease the value of the Company’s liabilities on that debt in terms of the Company’s functional currencies when those functional currencies depreciate or appreciate in value respectively. As a result of this, the Company is exposed to gains and losses on the re-measurement of these liabilities. The table below summarizes the pre-tax impact of a one percent movement in each of the exchange rate which could result in a significant impact in the results of the Company’s operations.

Exchange Rate	Value of notional amount	Pre-tax impact of a 1% movement in exchange rate
USD-Polish zloty	$426 million	$4.3 million gain/loss
USD-Russian ruble	$264 million	$2.6 million gain/loss
EUR-Polish zloty	€380 million or approximately $511 million	$5.1 million gain/loss

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934) refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Based upon the evaluation of the Company’s disclosure controls and procedures as of the end of the period covered by this report, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Inherent Limitations in Internal Control over Financial Reporting. The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Further, the design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, the Company’s disclosure controls and procedures are designed to provide reasonable assurance that the controls and procedures will meet their objectives.

Changes to Internal Control over Financial Reporting. The Chief Executive Officer and the Chief Financial Officer conclude that, during the most recent fiscal quarter, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

[None]

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ITEM 6. EXHIBITS

(a) Exhibits

Exhibit Number	Exhibit Description
3.1*	Amended and Restated Certificate of Incorporation.
3.2	Amended and Restated Bylaws (filed as Exhibit 99.3 to the Periodic Report on Form 8-K filed with the SEC on May 3, 2006 and incorporated herein by reference).
10.1	Amended and Restated Employment Agreement, dated January 1, 2010, by and between Central European Distribution Corporation and William V. Carey (filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 12, 2010 and incorporated herein by reference).
10.2	Amended and Restated Employment Agreement, dated January 1, 2010, by and between Central European Distribution Corporation and Christopher Biedermann (filed as Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on March 12, 2010 and incorporated herein by reference).
10.3	Amended and Restated Employment Agreement, dated January 1, 2010, by and between Central European Distribution Corporation and Evangelos Evangelou (filed as Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on March 12, 2010 and incorporated herein by reference).
10.4	Amended and Restated Employment Agreement, dated January 1, 2010, by and between Central European Distribution Corporation and James Archbold (filed as Exhibit 10.4 to the Current Report on Form 8-K filed with the SEC on March 12, 2010 and incorporated herein by reference).
10.5	Amended and Restated Executive Bonus Plan (filed as Exhibit 10.5 to the Current Report on Form 8-K filed with the SEC on March 12, 2010 and incorporated herein by reference).
31.1*	Certificate of the CEO pursuant to Rule 13a-15(e) or Rule 15d-15(e).
31.2*	Certificate of the CFO pursuant to Rule 13a-15(e) or Rule 15d-15(e).
32.1*	Certification of the CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of the CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith

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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 10, 2010	By:	/s/ William V. Carey
		William V. Carey
		President and Chief Executive Officer
Date: May 10, 2010	By:	/s/ Chris Biedermann
		Chris Biedermann
		Vice President and Chief Financial Officer

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EX-3.1

Exhibit 3.1

Amended and Restated Certificate of Incorporation

Of

Central European Distribution Corporation

ARTICLE 1. NAME

The name of this corporation is Central European Distribution Corporation (“The Corporation”)

ARTICLE 2. REGISTERED OFFICE AND AGENT

The registered office of the Corporation shall be located at 1013 Centre Road, Wilmington, New Castle County, Delaware 19805. The registered agent of the Corporation at such address shall be Corporation Service Company.

ARTICLE 3. PURPOSE AND POWERS

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “Delaware General Corporation Law”). The Corporation shall have all power necessary or convenient to the conduct, promotion, or attainment of such acts and activities.

ARTICLE 4. CAPITAL STOCK

4.1. Authorized Shares

The total number of shares of all classes of stock that the Corporation shall have authority to issue is 121.0 million, of which 120.0 million shall be Common Stock having a par value of $.01 per share (“Common Stock”) and 1.0 million shall be Preferred Stock, having a per value of $.01 per share (“Preferred Stock”)

4.2. Common Stock

4.2.1. Relative Rights

The Common Stock shall be subject to all of the rights, privileges, preferences, and priorities of the Preferred Stock as set forth in the certificate(s) of designations filed to establish the respective series of Preferred Stock. Each shares of Common Stock shall have the same relative rights as and be identical in all respects to all the other shares of Common Stock.

4.2.2. Dividends

Whenever there shall have been paid, or declared and set aside for payment, to the holders of the shares of any class of stock having preference over the Common Stock as to the payments of dividends, the full amount of dividends and of sinking fund or retirement payments, if any, to which such holders are respectively entitled in preference to the Common Stock, then dividends may be paid on the Common Stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends thereon, but only when and as declared by the Board of Directors of the Corporation.

4.2.3. Dissolution, Liquidation, or Winding Up

In the event of any dissolution, liquidation, or winding up of the Corporation, whether voluntary or involuntary, the holders of the Common Stock, and holders of any class or series of stock entitled to participate therewith, in whole or in part, as to the distribution of assets in such event, shall become entitled to participate in the distribution of any assets of the Corporation remaining after the Corporation shall have paid, or provided for payment of, all debts and liabilities of the Corporation and after the Corporation shall have paid, or set aside for payment, to the holders of any class of stock having preferences over the Common Stock in the event of dissolution, liquidation, or winding up the full preferential amounts (if any) to which they are entitled.

4.2.4. Voting Rights

Each shareholder of shares of Common Stock shall be entitled to attend all special and annual meetings of the stockholders of the Corporation and, to cast one vote for each share of Common Stock held of record upon any matter or thing (including without limitation, the election of one or more directors) properly considered and acted upon by the stockholders.

4.3 Preferred Stock

The Board of Directors is authorized, subject to limitations prescribed by the Delaware General Corporation Law and the provisions of this certificate of incorporation, to provide, by resolution or resolutions from time to time, and by filing a certificate(s) pursuant to the Delaware General Corporation Law, for the issuance of the shares of Preferred Stock in series, to establish from time to time the number of shares to be included in such series, to fix the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each such series and to fix the qualifications, limitations, or restrictions thereof.

ARTICLE 5. INCORPORATOR

5.1 The name and mailing address of the incorporator (the “Incorporator”) are Pamela L. Simpson, Corporation Service Company, 1013 Centre Road, Wilmington, DE 19805. The powers of the Incorporator shall terminate upon the filing of this Certificate of Incorporation.

5.2 The powers of the Incorporator shall terminate upon the filing of this Certificate of Incorporation.

ARTICLE 6. BOARD OF DIRECTORS

6.1. Number and Election

The number of directors of the Corporation shall be not less than two nor more than nine directors, the exact number of directors to be fixed from time to time by or in the manner provided in the bylaws of the Corporation. Upon the filing in the Office of the Secretary of the State of Delaware of the Certificate of Incorporation of the Corporation, the following persons, having the indicated mailing addresses, shall serve as the initial directors of the Corporation until the first annual meeting of the stockholders of the Corporation or until their successors are elected and qualify:

Name	Mailing Address
William V. Carey	1602 Cottagewood Drive, Brandon, FL 33511
James T. Grossman	805 S. Fairfax Street, Alexandria, VA 22314
James B. Kelly	7606 Hamilton Spring Road, Bethesda, MD, 20817
Jan W. Laskowski	115 ul. Marcinowska, 00102 Warsaw, Poland
Jeffrey Peterson	1502 Stonewall Road, Alexandria, VA 22302
Joe M. Richardson	P.O. Box 22154, Louisville, KY 40252

The terms of all other directors expire at the next annual stockholders’ meeting following their election. Unless and except to the extent that the bylaws of the Corporation shall otherwise require, the election of directors of the Corporation need not be by written ballot.

Any vacancy occurring in the Board of Directors, including any vacancy created by an increase in the number of directors, shall be filled by the vote of a majority of the directors then in office, whether or not a quorum, or by the sole remaining director, and any director so chosen shall hold office until the next election of directors and until such director’s successor shall have been elected and qualified, or until the director’s earlier resignation or removal. No director may be removed except for cause and then only by an affirmative vote of the holders of at least a majority of the outstanding shares of stock of

the Corporation entitled to vote thereon at a duly constituted meeting of stockholders called for such purpose. At least 30 days prior to such meeting of stockholders, written notice shall be sent to the director or directors whose removal shall be considered at such meeting.

6.2. Management of the Business and Affairs of the Corporation

The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

6.3 Limitation of Liability

No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this provision shall not eliminate or limit the liability of a director (a) for any breach of the director’s duty of loyalty to the Corporation or its stockholders; (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (c) under Section 174 of the Delaware General Corporation Law; or (d) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article 6.3 shall be prospective only and shall not adversely affect any right or protection of, or any limitation on the liability of, a director of the Corporation existing at, or arising out of facts or incidents occurring prior to, the effective date of such repeal or modification.

ARTICLE 7. COMPROMISE OR ARRANGEMENT

Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such a manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

ARTICLE 8. AMENDMENT OF BYLAWS

The Board of Directors or the stockholders may from time to time adopt, or amend or repeal the bylaws of the Corporation. Such action by the Board of Directors shall require the affirmative vote of at least a majority of the directors then in office at a duly constituted meeting of the Board of Directors called for such a purpose. Such action by the stockholders shall require the affirmative vote of the holders of at least a majority of the outstanding shares of stock of the Corporation entitled to vote thereon at a duly constituted meeting of stockholders called for such a purpose.

ARTICLE 9. RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION

The Corporation reserves the right at any time, and from time to time, to amend, alter, change, or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences, and privileges, of any nature conferred upon stockholders, directors, or any other persons by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this Article 9.

ARTICLE 10. STOCKHOLDER MATTERS

10.1. Consent in Lieu of Meeting

Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders, unless such consent is unanimous.

10.2. Call of Special Meetings

Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Board of Directors, the Chairman of the Board or the President of the Corporation, and shall be called by the President or the Secretary of the Corporation at the request in writing of a stockholder possessing at least 10 percent of the voting power of the issued and outstanding voting stock of the Corporation entitled to vote generally for the election of directors. Such request shall include a statement of the purpose or purposes of a proposed meeting.

ARTICLE 11. AMENDMENT OF CERTIFICATE OF INCORPORATION

Except as set forth in this Article 11 or as otherwise specifically required by law, no amendment of any provisions of this Certificate of Incorporation shall be made unless such amendment has been first proposed by the Board of Directors of the Corporation upon the affirmative vote of at least a majority of the directors then in office at a duly constituted meeting of the Board of Directors called for such purpose and

thereafter approved by stockholders of the Corporation by the affirmative vote of at least a majority of the holders of at least a majority of the outstanding shares of stock of the Corporation entitled to vote thereon; provided, however, if such amendment is to the provisions set forth in this clause of Article 11 or in Articles 4.1 (insofar as relating to the authorized number of shares of Preferred Stock), 4.3., 6.3., 8, or 10 hereof, such amendment must be approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of stock of the Corporation entitled to vote thereon rather than a majority of such shares.

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, William V. Carey, President and Chief Executive Officer of Central European Distribution Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Central European Distribution Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2010

By:	/s/ William V. Carey
	William V. Carey
	President and Chief Executive Officer (principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Chris Biedermann, Vice President and Chief Financial Officer of Central European Distribution Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Central European Distribution Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2010

By:	/s/ Chris Biedermann
	Chris Biedermann
	Vice President and Chief Financial Officer (principal financial officer)

EX-32.1

Exhibit 32.1

Written Statement of Chief Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned, the Chief Executive Officer of Central European Distribution Corporation (the “Company”), hereby certifies that, to his knowledge on the date hereof:

(a) the Form 10-Q of the Company for the quarterly period ended March 31, 2010, filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William V. Carey

William V. Carey

Chairman, President and Chief Executive Officer

May 10, 2010

EX-32.2

Exhibit 32.2

Written Statement of Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned, the Chief Financial Officer of Central European Distribution Corporation (the “Company”), hereby certifies that, to his knowledge on the date hereof:

(a) the Form 10-Q of the Company for the quarterly period ended March 31, 2010, filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Chris Biedermann

Chris Biedermann

Vice President and Chief Financial Officer

May 10, 2010