<PAGE>
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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 JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD ______________ TO ________________
COMMISSION FILE NUMBER 0-24341
CENTRAL EUROPEAN DISTRIBUTION
CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 54-18652710
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
211 NORTH UNION STREET, #100
ALEXANDRIA, VIRGINIA 22314
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
</TABLE>
703-838-5568
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
The number of shares outstanding of each class of the issuer's common stock
as of July 31, 1998:
Common Stock ($.01 par value)................ 3,780,000 shares
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<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements............................................ 3
Consolidated Condensed Balance Sheet, June 30, 1998 (unaudited)
and December 31, 1997........................................ 3
Consolidated Condensed Statements of Income (unaudited) for the
three and six months ended June 30, 1998 and 1997............ 5
Consolidated Condensed Statements of Changes in Stockholders'
Equity (unaudited)........................................... 6
Consolidated Condensed Statements of Cash Flows (unaudited) for
the six months ended June 30, 1998 and 1997.................. 7
Notes to Consolidated Condensed Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 12
PART II. OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities and Use of Proceeds....................... 15
Item 6. Exhibits and Reports on Form 8-K................................ 16
Signatures................................................................ 17
</TABLE>
2
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION Amounts in columns
expressed in thousands
- --------------------------------------------------------------------------------
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,053 $ 388
Accounts receivable, net of allowance for doubtful accounts
of $94,000 and $104,000, respectively 6,970 5,960
Inventories 3,280 2,842
Prepaid expenses and other current assets 235 152
Deferred income taxes 103 106
-------- --------
TOTAL CURRENT ASSETS 11,641 9,448
Equipment, net 503 713
Deferred charges 386 661
-------- --------
TOTAL ASSETS $12,530 $10,822
-------- --------
</TABLE>
See accompanying notes.
3
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION Amounts in columns
expressed in thousands
- --------------------------------------------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 9,790 $ 7,105
Bank loans and overdraft facilities 925 1,452
Other current liabilities 1,085 1,093
Current portion of long-term debt and capital lease obligations 349 228
-------- --------
TOTAL CURRENT LIABILITIES 12,149 9,878
Long term debt and capital lease obligations, less current portion 47 75
STOCKHOLDERS' EQUITY
Preferred stock ($0.01 par value, 1,000,000 shares authorized; no shares
issued and outstanding) - -
Common Stock ($0.01 par value, 20,000,000 shares authorized, 1,780,000
shares issued and outstanding) 18 18
Additional paid-in-capital 36 36
Retained earnings 280 811
Foreign currency translation adjustment - 4
-------- --------
TOTAL STOCKHOLDERS' EQUITY 334 869
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,530 $10,822
-------- --------
</TABLE>
See accompanying notes.
4
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION Amounts in columns expressed
in thousands (except per share data)
- --------------------------------------------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
1997 1998 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $9,552 $12,095 $17,522 $21,893
Cost of goods sold 8,281 10,256 15,188 18,536
------- -------- -------- --------
GROSS PROFIT 1,271 1,839 2,334 3,357
Sales, general and administrative expenses 983 1,278 1,909 2,406
------- -------- -------- --------
OPERATING INCOME 288 561 425 951
Non-operating income (expense)
Interest expense (37) (59) (81) (105)
Realized and unrealized foreign currency
transaction losses, net (109) (71) (213) (40)
Other income, net 14 16 39 28
------- -------- -------- --------
INCOME BEFORE INCOME TAXES 156 447 170 834
Income tax expense 74 162 95 303
------- -------- -------- --------
NET INCOME $ 82 $ 285 $ 75 $ 531
======= ======== ======== ========
NET INCOME PER COMMON SHARE, BASIC AND
DILUTIVE $0.05 $0.16 $0.04 $0.30
======= ======== ======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION Amounts in columns expressed
in thousands (except per share data)
- --------------------------------------------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Additional currency
paid-in- Retained translation
Common Stock capital earnings adjustment Total
--------------------------------------------------------------------
No. of
shares Amount
-------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,780,000 $18 $36 $280 $ - $334
Net income for the six months ended
June 30, 1998 - - - 531 - 531
Foreign currency translation
adjustment - - - - 4 4
----------------------------------------------------------------------
Comprehensive income for the six
months ended June 30, 1998 - - - 531 4 535
----------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 1,780,000 $18 $36 $811 $ 4 $869
======================================================================
</TABLE>
See accompanying notes.
6
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION Amounts in columns
expressed in thousands
- --------------------------------------------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six months Six months
ended ended
June 30, June 30,
1997 1998
------------ ------------
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES (107) (316)
INVESTING ACTIVITIES
Purchases of equipment (44) (317)
Proceeds from the disposal of equipment 60 -
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 16 (317)
FINANCING ACTIVITIES
Borrowings on overdraft facility 14,947 24,479
Payment of overdraft facility (14,951) (24,402)
Payment of capital lease obligations (81) (87)
Short-term borrowings 500 725
Payment of short term borrowings (490) (275)
Long-term borrowings - 139
Payment of long-term borrowings - (145)
Costs paid in connection with public
offering - (466)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (75) (32)
-------- --------
NET DECREASE IN CASH (166) (665)
Cash at beginning of period 740 1,053
-------- --------
CASH AT END OF PERIOD 574 388
======== ========
</TABLE>
See accompanying notes.
7
<PAGE>
These consolidated condensed financial statements (and notes thereto) are
unaudited, but include in the opinion of management, all adjustments
necessary (all of a normal recurring nature) for a fair presentation of such
data. The results for the unaudited interim periods are not necessarily
indicative of the results expected for the entire year. The condensed
balance sheet at December 31, 1997 has been derived from the audited
consolidated financial statements at that date but does not include all of
the information and footnotes required by accounting principles generally
accepted in the United States (US GAAP). The consolidated condensed
financial statements should be read in conjunction with the audited
consolidated financial statements for each of the three years in the period
ended December 31, 1997.
1. ORGANISATION AND DESCRIPTION OF BUSINESS
Central European Distribution Corporation (CEDC) was organized as a Delaware
Corporation in September 1997 to operate as a holding company through its
sole subsidiary, Carey Agri International Poland Sp. z o.o. (Carey Agri).
CEDC and Carey Agri are referred to herein as the Company.
2. ACCOUNTING POLICIES
The significant changes since December 31, 1997 in accounting policies and
practices followed by the Company are as follows:
Foreign Currency Translation and Transactions
As stated above, Carey Agri maintains its books of account in Polish
zloties. The accompanying consolidated condensed financial statements have
been prepared in US Dollars. For all periods prior to January 1, 1998,
transactions and balances not already measured in US Dollars (primarily
Polish zloties) have been remeasured into US Dollars in accordance with the
relevant provisions of US Financial Accounting Standard (FAS) No. 52
"Foreign Currency Translation" as applied to entities in highly inflationary
economies.
Under FAS No. 52, revenues, costs, capital and non-monetary assets and
liabilities are translated at historical exchange rates prevailing on the
transaction dates. Monetary assets and liabilities are translated at
exchange rates prevailing on the balance sheet date. Exchange gains and
losses arising from remeasurement of monetary assets and liabilities that
are not denominated in US Dollars are credited or charged to operations.
Effective January 1, 1998, the Company no longer considers Poland to be a
hyper-inflationary economy. Therefore, the Company has ceased accounting for
its Polish activities using provisions applicable to hyper-inflationary
economies on January 1, 1998 and treats the Polish zloty as its functional
currency. See the discussion below regarding the effect of this change on
comprehensive income.
Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
may differ from those estimates and such differences may be material to the
financial statements.
Effect of New Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued its
Statement No. 130, "Reporting Comprehensive Income". This standard became
effective for the Company in the three months ending March 31, 1998, and it
requires the disclosure of comprehensive income which is defined as all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. Comprehensive income includes net income
adjusted by, among other items, foreign currency translation adjustments. As
disclosed in this Note 2, for all periods before January 1, 1998, the
Company remeasures transactions and results of its Polish subsidiary in
accordance with FAS No. 52 as applied to entities in
8
<PAGE>
highly inflationary economies. Therefore, exchange gains and losses arising
from remeasurements of these monetary assets and liabilities are credited or
charged to net income. However, in 1998 since Poland is no longer considered
a highly inflationary economy, these remeasurements are recorded as a
separate component of equity and, under FAS No. 130, included as part of
comprehensive income.
In June 1997, the FASB issued its Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The standard is
effective for the Company in the year ending December 31, 1998, and it
requires, among other provisions, that a public business enterprise report
financial and descriptive information about its reportable operating
segments. The Company does not have any separate reportable operating
segments under the requirements of FAS No. 131.
Net Income Per Common Share
Net income per common share is calculated under the provisions of FAS No.
128, "Earnings per Share". The average number of shares outstanding was
1,780,000 during each of the periods. The stock options and warrants
outstanding at June 30, 1998 were not included in the computation of diluted
earnings per common share as the Company believes the exercise price would
be greater than or equal to the average market price of the common shares
and, therefore, the effect would be antidilutive.
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
1998
----------
<S> <C>
Loan denominated in US Dollars $ 103
Loans denominated in Polish zloty 174
Capital lease obligations 27
Current portion of these loans and capital lease obligations (229)
----------
Long-term portion $ 75
==========
</TABLE>
In the first quarter of 1998, the Company entered into a loan agreement for
the purchase of vehicles and warehouse equipment. The loan is denominated in
PLN and equaled a USD equivalent of approximately $100,000. The loan is to
be repaid in twenty-four equal installments through January 2000 and has an
interest rate equal to WIBOR + 3% (24.5% in June 1998). This loan is
collateralized by blank bills of exchange, the equipment financed, and the
assignment of an insurance policy on the equipment financed.
In the second quarter of 1998, the Company entered into another loan
agreement for the purchase of vehicles and warehouse equipment. The loan is
denominated in PLN and allowed for total borrowings of approximately
$70,000. Of this, approximately $40,000 of this was utilized through
June 30, 1998. The loan is to be repaid in 24 equal installments through May
2000 and has an interest rate of WIBOR + 3% (24.5% in June 1998). This loan
is collateralized by blank bills of exchange, the equipment financed, and
the assignment of an insurance policy on the equipment financed.
4. SHORT-TERM BANK LOANS
In the first quarter of 1998, the Company entered into a short-term bank
loan with a bank for $725,000 at an interest rate equal to LIBOR + 2.7%
(8.45% in March 1998). The loan was due in full on May 21, 1998 but was
extended to August 21, 1998. These loans are collateralized by blank bills
of exchange, the equipment financed and the assignment of an insurance
policy on the equipment financed. A vice president and member of the
management board of this bank is a director of the Company.
9
<PAGE>
In July 1998, the due date of the Company's U.S. Dollar revolving credit
line of $300,000 (with the same bank mentioned above) was extended to
October 10, 1998.
In July 1998, the due date of the Company's overdraft facility (in Polish
zloty, shown in approximate US Dollar equivalent) with a bank (other than
the bank referred to above) for $285,000 was extended to October 30, 1998
and the due date of the Company's USD short-term loan with this same bank
for $350,000 was extended to October 30, 1998
5. DEFERRED CHARGES
Costs incurred in connection with the public offering completed in July
1998, totalling $637,000 are included in deferred charges in the June 30,
1998 balance sheet. The change in the accrued portion during the six months
ended June 30, 1998 of $171,000 is not reflected in the Consolidated
Condensed Statements of Cash Flows. This amount and other charges incurred
subsequent to June 30, 1998 will be charged to stockholders' equity in the
three months ended September 30, 1998.
6. INCOME TAXES
Total income tax expense varies from expected income tax expense computed at
Polish statutory rates (38% in 1997 and 36% in 1998) as follows:
<TABLE>
<CAPTION>
Six months Six months
ended ended
June 30, 1997 June 30, 1998
--------------- ---------------
<S> <C> <C>
Tax at Polish statutory rate
Reduction in deferred tax valuation
allowance - (19)
Effect of foreign currency exchange
rate change on net deferred tax 15 (1)
assets
Effect of lower effective income tax
rate for United States - 2
Permanent differences
Interest on overdue taxes 1 3
Non-deductible social taxes 4 8
Non-deductible depreciation 2 3
Other non-deductible expenses 8 7
===== ======
Income tax expense $95 $303
===== ======
</TABLE>
The corporate income tax rates in Poland will be 34% in 1999 and 32% in
2000.
Carey Agri's tax liabilities (including corporate income tax, Value Added
Tax, social security, and other taxes) may be subject to examinations by
Polish tax authorities for up to five years from the end of the year the tax
is payable. CEDC's US federal income tax returns will also be subject to
examination by US tax authorities. Because the application of tax laws and
regulations to many types of transactions is susceptible to varying
interpretations, amounts reported in the financial statements could be
changed at a later date upon final determination by the tax authorities.
10
<PAGE>
7. SUBSEQUENT EVENTS
Initial Public Offering
The Company completed its initial public offering of 2,000,000 shares of
common stock on July 31, 1998. The public offering price was $6.50 per share.
The net proceeds to the Company are estimated to be approximately $10.7
million. The shares are currently quoted on the Nasdaq SmallCap Market.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this report.
OVERVIEW
The Company's operating results are generally determined by the volume of
alcoholic beverages that can be sold by the Company through its national
distribution system, the gross profits on such sales and control of costs. The
Company purchases the alcoholic beverages it distributes from producers as well
as other importers and wholesalers. Almost all such purchases are made with the
sellers providing a period of time, generally between 25 and 90 days, before the
purchase price is to be paid by the Company. Since the initial public offering,
the Company pays costs on delivery for its domestic vodka purchases in order to
receive additional discounts. The Company sells the alcoholic beverages with a
mark-up over its purchase price, which mark up reflects the market price for
such individual product brands in the Polish market. The Company's bad debt
ratio provision as a percentage of net sales was 0.21% in 1995, 0.08% in 1996,
0.12% in 1997 and 0.11% in the three-month period ended March 31, 1998.
The following comments regarding variations in operating results should be
read considering the rates of inflation in Poland during the period -- 1995,
21.6%; 18.5%; and 1997, 14.9% -- as well as the devaluation of the Polish zloty
compared to the U.S. Dollar, which was 1.2%. 16.6%, and 22.6% in 1195, 1996 and
1997, respectively.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
Net sales increased $4.37 million, or 24.9% from $17.52 million in 1997 to
$21.89 million in 1998. This increase is mainly due to increased market
penetration by the existing distribution system and increased sales of domestic
vodka.
Cost of goods sold increased $3.35 million, or 22.0%, from $15.19 million in
1997 to $18.54 million in 1998. As a percentage of net sales cost of goods sold
decreased from 86.7% to 84.7%. This decrease is mainly due to price increases
for domestic vodka, which offset the higher portion of vodka sales which sells
at a lower gross margin than imported alcohol products, and better terms
obtained from vodka producers due to higher sales volumes.
Sales, general and administrative expense increased 26.0% from $1.91 million in
1997 to $2.41 million in 1998. This increase is mainly due to the expansion of
sales noted above. As a percentage of net sales, sales, general and
administrative expenses increased slightly from 10.9% to 11.0%.
Interest expense increased $24,000 or 29.6% from $81,000 in 1997 to $105,000 in
1998. This increase is mainly due to additional short-term credits to support
the sales growth noted above. As a percentage of net sales, interest expense
was 0.5% in 1997 and 1998.
Net realized and unrealized foreign currency transactions resulted in losses of
$213,000 in 1997 and $40,000 in 1998. The lower net loss in 1998 is mainly due
to the relative stability of the zloty, versus the U.S. dollar, in which a
substantial portion of the Company's assets are denominated.
Income tax expense increased $208,000, from $95,000 in 1997 to $303,000 in 1998.
This increase is mainly due to the increase in income before income taxes from
$170,000 to $834,000, respectively.
The effective tax rate decreased from 55.9% in 1997 to 36.3% to 36.3% in 1998.
Permanent differences (for items such as non-deductible interest, taxes, and
depreciation) between financial and taxable income normally make up a
considerably lower percentage of income before income taxes when income before
income taxes is higher, as it was in 1998. For this reason, as well as the
decrease in the statutory tax rate in Poland from 38% in 1997 to 36% in
12
<PAGE>
1998, the effective tax rate was significantly lower in 1998. See notes to the
consolidated condensed financial statements for further information on income
taxes.
Net income increased $456,000 from $75,000 in 1997 to $531,000 in 1998. This
increase is due to the factors noted above.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
Net sales increased $2.54 million, or 26.6% from $9.55 million to $12.0 million.
This increase is mainly due to increased market penetration by the existing
distribution system and increased sales of domestic vodka.
Cost of goods sold increased $1.98 million, or 23.8%, from $8.28 million in 1997
to $10.26 million in 1998. As a percentage of net sales cost of goods sold
decreased from 86.7% to 84.8%. This decrease is mainly due to better terms
obtained from vodka producers due to higher sales volumes.
Sales, general and administrative expense increased 30.0% from $0.98 million in
1997 to $1.28 million in 1998. This increase is mainly due to the expansion of
sales noted above. As a percentage of net sales, sales, general and
administrative expenses increased from 10.3% to 10.6%.
Interest expense increased $22,000 from $37,000 in 1997 to $59,000 in 1998.
This increase is mainly due to additional short-term credits to support the sale
growth noted above.
Net realized and unrealized foreign currency transactions resulted in losses of
$109,000 in 1997 and $71,000 in 1998. In 1998, the zloty, in which a
substantial portion of the Company's assets are denominated depreciated versus
the U.S. dollar at a slower rate than in 1997.
Income tax expense increased $88,000, from $74,000 in 1997 to $162,000 in 1998.
This increase is mainly due to the increase in income before income taxes from
$156,000 to $447,000, respectively.
The effective tax rate decreased from 47.4% in 1997 to 36.2% in 1998. Permanent
differences (for items such as non-deductible interest, taxes, and depreciation)
between financial and taxable income normally make up a considerably lower
percentage of income before income taxes when income before income taxes is
higher, as it was in 1998. For this reason, as well as the decrease in the
statutory tax rate in Poland from 38% in 1997 to 36% in 1998, the effective tax
rate was significantly lower in 1998. See notes to the consolidated condensed
financial statements for further information on income taxes.
Net income increased $203,000 from $82,000 in 1997 to $285,000 in 1998. This
increase is due to the factors noted above.
STATEMENT OF LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash balance decreased by $665,000 in the first six months of
1998 compared to decrease of $166,000 in the corresponding period of 1997,
primarily as a result of a higher working capital used in operating activities
and additional funds required to finance public offering expenses.
The net cash used in operating activities decreased by $316,000 in 1998 compared
to $107,000 in 1997. The decrease is due to higher working capital required to
finance the strong sales growth in 1998.
The investing activities amount to $317,000 and are in most part related to
purchases of transportation equipment.
Financing activities resulted in a decrease of $32,000, where a cash decrease of
$466,000 resulted from financing the public offering expenses. The net change
of the overdraft facility was an increase of borrowing of $77,000.
In the first half of 1998 the Company retired borrowing in the amount of
$420,000, and incurred short-term debts of $725,000 and investment loans of
$139,000.
13
<PAGE>
STATEMENT ON INFLATION AND CURRENCY FLUCTUATIONS
The inflation is projected at 9.5% for the whole of 1998, substantially lower
than previous years and therefore the impact on the financial statements in the
first six months of the year is less material than in previous years.
The share of purchases denominated in foreign currencies has decreased resulting
in lower foreign exchange exposure. However, the level of borrowing denominated
in US dollars has increased due to higher sales and the need to finance public
offering expenses. The zloty was relatively stable in the first six months of
the year.
SEASONALITY
The Company's sales have been historically seasonable with over 56% of the sales
in 1997 occurring in the second half of the year, of which over 31% occurred in
the last quarter. The higher leveraging of the business and effectiveness
result in larger share of net profits earned in the second half of the year. In
fiscal 1997, over 75% of net profits were earned in the second half of the year.
The Company expects to experience variability in the sales and net income on a
quarterly basis.
The Company's working capital requirements are also seasonal, and are normally
highest in the months of December to January. Liquidity is then normally
improving when collections are made on the higher sales during the month of
December.
LEGAL PROCEEDINGS
The Company continues to be involved in litigation from time to time in the
ordinary course of business.
In management's opinion, the litigation in which the Company is currently
involved, individually and in the aggregate, is not material to the Company's
financial condition or results of operations.
YEAR 2000 COMPLIANCE
The Company believes to be able to achieve year 2000 compliance by the end of
1999. The Company does not expect any disruptions in its operations as a result
of any failure by the Company to be in compliance.
14
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company completed its initial public offering (the "Offering") of its
common stock, $.01 per value (the "Common Stock"), on July 31, 1998. The
registration statement (the "Registration Statement") relating to the Offering
(File No. 333-42387) was declared effective by the SEC on July 27, 1998. The
managing underwriters of the Offering were Brean Murray & Co., Inc. and Fine
Equities, Inc. The number of shares of Common Stock registered and sold in the
Offering was 2,000,000 and the aggregate price of the offering amount registered
and sold was $13,000,000. All shares were sold by the Company.
From the effective date of the Registration Statement through the date of this
report, the total amount of expenses incurred by the Company in connection with
the issuance and distribution of the shares in the Offering was approximately
$1,965,000. Of such expenses, $1,340,000 consisted of underwriting discounts
and commissions.
The following table sets forth the various expenses in connection with the
issuance and distribution of the securities being registered hereby, other than
underwriting discounts and commissions and a non-accountable expense allowance.
All of such expenses were borne by the Company.
<TABLE>
<S> <C>
SEC Registration Fee..................................... $ 5,286
NASD Filing Fee.......................................... 2,292
Nasdaq SmallCap Market Listing Fee....................... 9,280
Accounting Fees and Expenses............................. 200,000
Legal Fees and Expenses.................................. 375,000
Printing and Engraving Expenses.......................... 140,000
Transfer Agent Fees and Expenses......................... 3,500
Miscellaneous............................................ 189,642
--------
Total.............................................. $925,000
========
</TABLE>
The amounts set forth in the preceding table were paid to persons other than
directors or officers of the Company or their associates, persons owning 10% or
more of any class of equity of the Company, or affiliates of the Company.
The net proceeds of the Offering to the Company after deducting the foregoing
expenses totaled $10,700,000.
15
<PAGE>
USE OF PROCEEDS
The net proceeds of the offering to the Company after deducting the foregoing
expenses totaled $10.7 million.
<TABLE>
<S> <C>
Short term financial instruments $ 5,700,000
denominated in US dollars
Exchanged into PLN to improve $ 4,000,000
working capital
Repayment of PLN denominated loans $ 200,000
Prepayment of suppliers $ 800,000
</TABLE>
The amounts set forth in the preceding table were paid to persons other than
directors or officers of the Company or their associates, persons owning 10% or
more of any class of equity securities of the Company, and affiliates of the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
27.1 Financial Data Schedule.
99.1 Press release dated July 28, 1998.
</TABLE>
(b) Reports on Form 8-K
None
16
<PAGE>
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: August 24, 1998 By: /s/ William V. Carey
------------------------------------------
William V. Carey
President and Chief Executive Officer
Date: August 24, 1998 By: /s/ Robert Bohojlo
------------------------------------------
Robert Bohojlo
Vice President and Chief Financial Officer
17
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT DESCRIPTION PAGE
- ---------- ---------------------------------------------------- ------------
<C> <S> <C>
27.1 Financial Data Schedule.
99.1 Press release dated July 28, 1998.
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF CEDC FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 388
<SECURITIES> 0
<RECEIVABLES> 6,064
<ALLOWANCES> 104
<INVENTORY> 2,842
<CURRENT-ASSETS> 9,448
<PP&E> 1,097
<DEPRECIATION> 384
<TOTAL-ASSETS> 10,822
<CURRENT-LIABILITIES> 9,878
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 851
<TOTAL-LIABILITY-AND-EQUITY> 10,822
<SALES> 21,893<F1>
<TOTAL-REVENUES> 21,893
<CGS> 18,536
<TOTAL-COSTS> 18,536
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 834
<INCOME-TAX> 303<F2>
<INCOME-CONTINUING> 531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 531
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
<FN>
<F1>All sales are in the country of Poland.
<F2>All income taxes are to the country of Poland.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.1
CENTRAL EUROPEAN DISTRIBUTION CORPORATION ANNOUNCES INITIAL
PUBLIC OFFERING
Alexandria, VA, July 28 -- Central European Corporation (Nasdaq:CEDC)
announced that its initial public offering of 2.0 million shares of common stock
was priced at $6.50 per share. The managers of the offering are Brean Murray &
Co., Inc. and Fine Equities, Inc. The Company has granted the underwriters an
option to purchase up to 300,000 additional shares of common stock at the
initial public offering price for the purposes of covering over-allotments,
if any.
The Company expects to receive net proceeds of approximately $10.7
million after deduction of underwriting discounts and commissions and estimated
offering expenses, assuming no exercise of the over-allotment option. The net
proceeds of the offering will be used to prepay suppliers, retire bank
financing, open retail stores and other working capital and general corporate
purposes, including acquisitions of wholesalers and importers of alcohol
beverages in Poland. CEDC is a leading importer and distributor of alcoholic
beverages in Poland and operates the largest nationwide next-day alcoholic
beverage delivery service in Poland.
A written prospectus may be obtained from Brean Murray & Co., Inc.
570 Lexington Avenue, New York, NY 10022 (telephone: 212-702-6500) or Fine
Equities, 600 Third Avenue, New York, NY 10022 (telephone: 212-687-0888).
