-------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD JULY 1, 2000 TO SEPTEMBER 30, 2000.
COMMISSION FILE NUMBER 0-24341
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 54-18652710
------------------------ -------------------------------
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
1343 MAIN STREET, #301
SARASOTA, FLORIDA 34236
--------------------------------------- -----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(941) 330-1558
-------------------------------
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
The number of shares outstanding of each class of the issuer's common stock as
of September 30, 2000:
Common Stock ($.01 par value)............................... 4,402,356 shares
--------------------------------------------------------------------------------
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements ........................................................... 3
Consolidated Condensed Balance Sheets, September 30,
2000 (unaudited) and December 31, 1999 ...................................... 3
Consolidated Condensed Statements of Income (unaudited) for the
three and nine month periods ended September 30, 1999 and September 30,
2000......................................................................... 5
Consolidated Condensed Statements of Changes in Stockholders'
Equity (unaudited) as of September 30, 2000.................................. 6
Consolidated Condensed Statements of Cash Flows (unaudited) for
the nine month periods ended September 30, 1999 and September 30 2000....... 7
Notes to Consolidated Condensed Financial Statements (unaudited)................ 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................... 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk....................... 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................................... 20
Signatures ............................................................................... 21
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
Amounts in columns expressed in thousands
(except per share data)
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,115 $ 2,540
Accounts receivable, net of allowance for
doubtful accounts of $343,000 and $910,000,
respectively 17,299 18,586
Inventories 7,610 6,926
Prepaid expenses and other current assets 2,208 1,421
Deferred income taxes 107 164
------- -------
TOTAL CURRENT ASSETS 30,339 29,637
Equipment, net 1,618 2,691
Intangible assets, net 6,676 10,877
Other assets 139 145
Deferred income taxes 194 349
------- -------
TOTAL ASSETS $38,966 $43,699
======= =======
See accompanying notes.
3
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) - CONTINUED
Amounts in columns expressed in thousands
(except per share data)
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 14,629 $ 14,039
Bank loans and overdraft facilities 4,930 9,051
Other current liabilities 1,172 933
Current portion of long-term debt - 3,347
-------- --------
TOTAL CURRENT LIABILITIES 20,731 27,370
Long term debt, net of current portion 3,622 1,313
STOCKHOLDERS' EQUITY
Preferred stock ($0.01 par value, 1,000,000
shares authorized; no shares issued and
outstanding) -- --
Common Stock ($0.01 par value, 20,000,000
shares authorized, 4,134,230 and 4,402,356
shares issued and outstanding at
December 31, 1999 and September 30,
2000, respectively) 42 45
Additional paid-in-capital 12,900 14,175
Retained earnings 3,650 3,879
Accumulated other comprehensive loss (1,979) (3,083)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 14,613 15,016
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,966 $ 43,699
======== ========
See accompanying notes.
4
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Amounts in columns expressed in thousands
(except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 25,676 $ 32,103 $ 63,450 $ 82,146
Cost of goods sold 22,145 27,906 54,592 71,052
-------- -------- -------- --------
GROSS PROFIT 3,531 4,197 8,858 11,094
Selling, general and
administrative expenses 2,380 3,706 6,388 9,506
-------- -------- -------- --------
OPERATING INCOME 1,151 491 2,470 1,588
Non-operating income (expense)
Interest expense (90) (252) (200) (643)
Interest income 99 46 256 211
Realized and unrealized
foreign currency
transaction
loss, net (394) (236) (377) (742)
Other income
(expense), net 124 61 117 (94)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 890 110 2,266 320
Income tax expense (benefit) 480 (9) 876 91
-------- -------- -------- --------
NET INCOME 410 119 1,390 229
======== ======== ======== ========
NET INCOME
PER SHARE OF COMMON STOCK,
BASIC AND DILUTIVE $ 0.10 $ 0.03 $ 0.35 $ 0.05
======== ======== ======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
Amounts in columns expressed in thousands
(except per share data)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PAID-IN RETAINED COMPREHENSIVE
COMMON STOCK CAPITAL EARNINGS LOSS TOTAL
------------- ---------- ---------- ------------- --------------
NO. OF
SHARES AMOUNT
--------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1999 4,134 $ 42 $ 12,900 $ 3,650 $ (1,979) $14,613
Issue of shares
for acquisition 268 3 1,275 1,278
Net income for
the nine months
ended September 30,
2000 229 229
Foreign currency
translation
adjustment (1,104) (1,104)
--------- ------- -------- --------- ---------- -------
Comprehensive loss for the
nine months ended
September 30, 2000 -- -- -- 229 (1,104) (875)
--------- ------- -------- --------- ----------- -------
BALANCE AT
SEPTEMBER 30,
2000 4,402 $ 45 $ 14,175 $ 3,879 $ (3,083) $15,016
========== ======= ======== ========== =========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Amounts in columns expressed in thousands
(except per share data)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000
-------- --------
NET CASH USED IN OPERATING ACTIVITIES $ (1,350) $ (757)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (1,030) (1,205)
Proceeds from the disposal of equipment 81 76
Acquisition of companies (4,758) (3,855)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (5,707) (4,984)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on overdraft facility 2,666 --
Payments of overdraft facility (1,094) (171)
Short-term borrowings 524 1,939
Payments of short term borrowings -- (1,327)
Long-term borrowings 6,459 5,600
Payments of long-term borrowings -- 875
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,555 5,166
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,498 (575)
Cash and cash equivalents at beginning of period 3,628 3,115
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,126 $ 2,540
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Common stock issued in connection with
acquisition of subsidiaries $ 2,253 $ 1,278
======== ========
See accompanying notes.
7
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
1. ORGANISATION AND DESCRIPTION OF BUSINESS
Central European Distribution Corporation (CEDC) was organized as a Delaware
Corporation in September 1997 to operate as a holding company through its
sole subsidiary, Carey Agri International Poland Sp. z o.o.(Carey Agri). In
1999 CEDC formed two additional subsidiaries (MTC and CFW) and in 2000
acquired another company as disclosed in Note 5 below. CEDC and its
subsidiaries are referred to herein as the Company.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included and the disclosures
herein are adequate to make the information presented not misleading.
Operating results for the nine month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and Subsidiaries' annual
report on Form 10-K for the year ended December 31, 1999.
3. COMPREHENSIVE INCOME
During the nine month period ended September 30, 2000, the Company incurred
foreign currency translation losses of $1,087,000, and reported an
accumulated other comprehensive loss of $3,083,000 as of September 30, 2000
as reflected in the Consolidated Condensed Statements of Changes in
Stockholder's Equity (Unaudited). The losses were due to the currency
fluctuations, largely between the Polish Zloty and the US Dollar, and local
currency translation losses on USD transactions with the parent company of a
long-term investment nature.
8
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
4. EARNINGS PER SHARE
Net income per common share is calculated under the provisions of SFAS No.
128, "Earnings per Share". The increase in stock in 2000 gives effect to the
acquisitions in 1999 and 2000.
The following table sets forth the computation of basic and diluted earnings
per share for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
------------- ------------- ------------- -------------
Basic:
Net income $ 410 $ 119 $ 1,390 $229
======= ======= ======= ======
Average shares
outstanding 4,134 4,402 4,022 4,314
======= ======= ======= ======
Basic EPS $ 0.10 $ 0.03 $ 0.35 $ 0.05
======= ======= ======= ======
Diluted:
Net income $ 410 $ 119 $ 1,390 $229
======= ======= ======= ======
Average shares
outstanding 4,134 4,402 4,022 4,314
Net effect of dilutive
stock options -
based on the treasury
stock method -- -- -- --
======= ======= ======= ======
Totals 4,134 4,402 4,022 4,314
======= ======= ======= ======
Diluted EPS $ 0.10 $ 0.03 $ 0.35 $ 0.05
======= ======= ======= ======
Warrants granted in connection with the 1998 IPO and stock options granted in
1998, 1999 and 2000 have been excluded from the above calculations of diluted
shares since the exercise price is equal to or greater than the average
market price of the common shares during 1999 and 2000.
9
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
5. ACQUISITIONS
In separate transactions in March 1999 and May 1999, the Company acquired
certain assets, businesses and trademarks of Multi Trade Company S.C. ("MTC")
and The Cellar of Fine Wines ("CFW") for a combination of cash and common stock.
On March 31, 2000, the Company purchased 100% of the shares of Polskie Hurtownie
Alkoholi Sp. z o.o. ("PHA"- distributing alcoholic beverages in Western Poland)
for approximately $4 million cash and 268,126 shares of common stock. The pro
forma UNAUDITED results of operations for the three and nine month periods ended
September 30, 1999 and September 30, 2000, assuming the consummation of these
acquisitions and issuance of the common stock as of January 1, 1999 and January
1, 2000 are disclosed below. The pro forma results for the 1999 period include
the results for all three companies referred to above.
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
------------- ------------- ------------- -------------
Net sales $ 36,539 $ 32,103 $ 101,141 $ 91,619
Net income 548 119 1,460 113
Net income
per share data:
Basic and diluted $ 0.12 $ 0.03 $ 0.33 $ 0.03
The allocation of the purchase price for the PHA acquisition reflected in
the March 31, 2000 consolidated condensed balance sheet (unaudited) is
preliminary and subject to revision upon expiration of the escrow period upon
which certain adjustments of the purchase price may occur. Also, the Company has
not finalized the independent valuation of PHA at this time. Consequently, the
entire amount ($5,228,000) of the excess cost over net assets acquired has been
provisionally reported as goodwill in the accompanying consolidated condensed
balance sheet (unaudited) and for purposes of the pro forma disclosures noted
above it is being amortized over the future economic benefit of 20 years. The
escrow deposit of $250,000 will be paid in full to the sellers if between March
31, 2000 and August 31, 2000 the gross margin on sales by PHA is not less than
the gross margin achieved by PHA in the period between March 31, 1999 and August
31, 1999. The gross margin critieria was met, and one-half of the escrow deposit
was paid, the other half will be paid pending discussions with the previous
shareholders concerning unrecorded liabilities. Management expects to finalize
the purchase price and the related allocations during the fourth quarter.
10
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
6. LONG-TERM DEBT AND SHORT-TERM BANK LOANS
On March 21, 2000 the Company signed a loan agreement for $700,000 to
replace two loans redeemed in March 2000. The interest rate is 3 month LIBOR
plus 1.5% and the loan is repayable on March 31, 2001.
On March 29, 2000 the Company signed an agreement for a long term loan of
$4,000,000. This loan was used as part of the consideration in the acquisition
of PHA. The annual interest rate is 3 month LIBOR plus 1,65%. The loan is
repayable in installments of $500,000 commencing June 30, 2001.
On May 8, 2000 the Company signed a loan agreement for $1,500,000 to replace the
loan redeemed in May 2000. The interest rate is 3 month LIBOR plus 1.4% and the
loan is repayable on June 30, 2001.
On May 16, 2000 the Company signed an agreement for a long term loan of
$850,000. The annual interest rate is 3 month LIBOR plus 1,5%. The loan is
repayable in installments of $212,500 commencing August 20, 2001.
In May 2000, the Company extended its loan facility of EURO 1,500,000 to May 11,
2001.
In June 2000, the Company signed an overdraft facility agreement of $500,000 for
financing trade activity with JMB a new key account. This facility was increased
in August 2000 by an additional $500,000 to cover increased trade.
On July 21, 2000, the Company signed a loan agreement for $750,000. The annual
interest rate is 3 month LIBOR plus 1.5%. The loan is repayable in installments
of $201,250 commencing August 20, 2001.
On August 1, 2000, the Company signed an agreement for a short term loan
amounting to $ 233,110. The annual interest rate is 1 month LIBOR plus 0.8%. The
interest is paid monthly. The loan is repayable on June 16, 2001.
11
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
7. INCOME TAXES
Total income tax expense varies from expected income tax expense computed
at Polish statutory rates (34% in 1999 and 30% in 2000) as follows:
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
------------------ ------------------
Tax at Polish
statutory rate $ 770 $ 96
Increase, in
deferred tax
valuation allowance 35
Permanent differences
and other items 71 (5)
------- -------
Income tax expense $ 876 $ 91
======= =======
The enacted corporate income tax rates in Poland is 30% in 2000 and will
be 28% in 2001.
Tax liabilities (including corporate income tax, Value Added Tax, social
security, and other taxes) of the Company's Polish subsidiaries may be
subject to examinations by Polish tax authorities for up to five years
from the end of the year in which the tax is payable. CEDC's US federal
income tax returns are also subject to examination by US tax authorities.
As the application of tax laws and regulations for the many types of
transactions is susceptible to varying interpretations, amounts reported
in the financial statements may change at a later date upon final
determination by the tax authorities.
8. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in litigation and has claims against it for
matters arising in the ordinary course of business. In the opinion of
management, the outcome will not have a material adverse effect on the
Company.
The Company has signed an agreement to purchase a modern warehouse
and distribution facility within the Warsaw city limits. Consideration
for the purchase will be $15 million and completion is expected in
quarter 4. Presently the Company has only been required to pay $ 50,000
as a contract signing fee.
12
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
8. COMMITMENTS AND CONTINGENT LIABILITIES - CONTINUED
One of the Company's subsidiaries articles of association states that
retained earnings must be distributed to the shareholders. The subsidiary
has not paid any dividends, but rather elected to retain its profits. The
Polish tax authorities may view the violation of the articles of
association as a form of an non-interest bearing loan and as a result
impute taxable interest based on the bank borrowing rate. This imputed
interest is taxable at the corporate income tax rate. The additional
amount of tax that maybe payable could amount to approximately $144,000
USD. The subsidiary has revised its articles in order to minimize the
risk and also believes that no provision for the added tax expenses is
necessary at this time.
9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivatives Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires the Company to recognize
all derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. It further provides criteria for
derivative instruments to be designated as fair value, cash flow or
foreign currency hedges, and establishes accounting standards for
reporting changes in the fair value of the derivative instruments. Upon
adoption, the Company will be required to adjust hedging gains or losses
as adjustments to be reported in net income or other comprehensive income
as appropriate. The Company will adopt SFAS No. 133 in fiscal 2001.
Management does not believe the adoption of SFAS No. 131 will have a
material effect on the Company's results of operations or financial
position.
13
<PAGE>
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in tables expressed in thousands
(except per share data)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis should be read in conjunction with the
financial statements and the notes thereto appearing elsewhere in
this report.
OVERVIEW
The Company's operating results are generally determined by the
volume of alcoholic beverages that can be sold by the Company
through its national distribution system, the gross profits on
such sales and control of costs. The Company purchases the
alcoholic beverages it distributes from producers as well as other
importers and wholesalers. Almost all such purchases are made with
the sellers providing a period of time, generally between 25 and
90 days, before the purchase price is to be paid by the Company.
Since the initial public offering, in July 1998, the Company pays
costs on delivery for most of its domestic vodka purchases in
order to receive additional discounts. The Company sells the
alcoholic beverages with a mark-up over its purchase price, which
mark up reflects the market price for such individual product
brands in the Polish market. The Company's bad debt ratio
provision as a percentage of net sales was 0.12% in 1997, 0.17% in
1998, 0.28% in 1999, and 0.88% in the nine-month period ended
September 30, 2000.
The following comments regarding variations in operating results
should be read considering the rates of inflation in Poland during
the period, 9.8% in 1999 and 10.3% for the nine months ended
September 30, 2000 -- as well as the movement of the Polish Zloty
compared to the U.S. Dollar. The Zloty depreciated 18.6% against
the U.S. Dollar in 1999. In the nine-month period to September 30,
2000 the Zloty depreciated 9.4% against the U.S. Dollar.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1999
Net sales increased $18.7 million, or 29.5% from $63.45 million in
1999 to $82.15 million in 2000. This increase is mainly due to
increased market penetration by the existing distribution system,
increased sales of domestic vodka and the effect of acquisitions.
14
<PAGE>
Cost of goods sold increased $16.46 million, or 30.2%, from $54.59
million in 1999 to $71.05 million in 2000. As a percentage of net
sales cost of goods sold increased from 86% to 86.5%. This
increase is mainly due to increased sales of domestic vodka as a
portion of sales because domestic vodka sells at a lower gross
margin than imported alcohol products.
Sales, general and administrative expense increased 49% from
$6.39 million in 1999 to $9.51 million in 2000. 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 10.1% in 1999 to 11.6% in 2000. This increase is due to
increased costs on goodwill amortization and provisioning for
doubtful debts.
Interest expense increased $443,000 or 221.5% from $200,000 in
1999 to $643,000 in 2000. This increase is mainly due to
additional short-term credits to support the sales growth noted
above and to make acquisitions. As a percentage of net sales,
interest expense was 0.3% in 1999 and 0.8% in 2000.
Net realized and unrealized foreign currency transactions resulted
a loss of $377,000 in 1999 and a loss of $742,000 in 2000. The
loss in 2000 is mainly due to the losses of the Zloty versus the
EURO and US Dollar. A substantial portion of the Company's assets
are denominated in the Zloty, while borrowings denominated in
EURO's and US Dollars were increased.
Income tax expense decreased $785,000 from $876,000 in 1999 to
$91,000 in 2000. This decrease is mainly due to the decrease in
income before income taxes from $2.26 million to $320,000
respectively and adjustments of the deferred tax asset valuation
allowance in the third quarter.
The effective tax rate decreased from 38.7% in 1999 to 28.4% in
2000.
Net income decreased $1.16 million from $1.39 million in 1999 to
$229,000 in 2000. This decrease is due to the factors noted above.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED
SETEMBER 30, 1999
Net sales increased $6.42 million, or 25% from $25.68 million to
$32.10 million. This increase is mainly due to increased market
penetration by the existing distribution system, increased sales
of domestic vodka and acquisitions.
15
<PAGE>
Cost of goods sold increased $5.76 million, or 26%, from $22.15
million in 1999 to $27.91 million in 2000. As a percentage of net
sales, cost of goods sold increased from 86.2% to 86.9%. This
increase is mainly due to higher sales of domestic vodka, which
sells at a lower gross margin than imported products.
Sales, general and administrative expense increased $1.33 million,
or 55.8% from $2.38 million in 1999 to $3.71 million in 2000. 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 9.3% to 11.5%.
Interest expense increased $162,000 from $90,000 in 1999 to
$252,000 in 2000. This increase is mainly due to additional
borrowings for working capital and for the acquisitions. Interest
income decreased $53,000 from $99,000 in 1999 to $46,000 in 2000.
This other income was mainly due to cash invested in short-term
deposits.
Net realized and unrealized foreign currency transactions
decreased $158,000 from a loss of $394,000 in 1999 to a loss of
$236,000 in 2000. During the three months ended September 30,
2000, the zloty, in which a substantial portion of the Company's
assets are denominated, depreciated 3.4% versus the U.S. Dollar.
Income tax expense decreased $471,000 from $480,000 in 1999 to a
credit of $9000 in 2000. This decrease is mainly due to the
decrease in income before income taxes from $890,000 to $110,000,
respectively and an adjustment of the deferred tax asset valuation
allowance and calculations of the tax benefits applicable to
translation differences.
The effective tax rate decreased from 53.9% in 1999 to (8.2) in
2000. Permanent differences (for items such as non-deductible
interest, taxes, and depreciation) between financial and taxable
income increased, and the deferred tax asset valuation allowance
and tax benefits of translation differences arising in the second
quarter were adjusted in the quarter ended September 30, 2000. For
these reasons the effective tax rate was significantly higher in
2000.
Net income decreased $291,000 from $410,000 in 1999 to $119,000 in
2000. This increase is due to the factors noted above.
STATEMENT OF LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash balance decreased by $0.58 million in the
first nine months of 2000 compared to an increase of $1.5 million
in the corresponding period of 1999, primarily as a result of
higher working capital provided from debt financing activities.
The net cash used in operating activities decreased by $0.59
million in 2000 to a negative $0.76 million compared to a negative
$1.35 million in 1999. The increase is due to higher working
capital from operations and the effect of borrowings.
16
<PAGE>
The investing activities amount to $4.98 million in the 2000
period and are in most part related to the acquisitions as well as
a substantial increase in vehicle purchases as leases expired.
During the 1999 period the investing activities amounted to $5.71
million of which the largest part was invested in marketable
securities.
Financing activities resulted in an increase of $5.17 million due
to EURO and U.S. Dollar denominated loans. The net change of the
overdraft facility and short-term borrowings was an increase of
borrowings of $1.8 million.
The Company began 2000 with debts of $8.5 million and in the first
nine-months of 2000 the Company incurred short-term debts of $0.44
million and long-term debt of $4.77 million to facilitate the
acquisitions and increase working capital.
The amount of the Company's stockholders' equity is directly
affected by foreign currency translation adjustments. In the first
nine months of 2000, such adjustments resulted in a comprehensive
loss of $1.10 million and a decrease in stockholders' equity of a
like amount. See note 3 to the condensed consolidated financial
statements for further information.
STATEMENT ON INFLATION AND CURRENCY FLUCTUATIONS
Inflation in Poland is projected at 9.1% for the whole of 2000,
compared to 9.8% for 1999. For the first nine months of 2000, the
inflation was 10.3%.The share of purchases denominated in non-
Polish currency has decreased resulting in lower foreign exchange
exposure for purchases. However, the level of borrowing
denominated in U.S. Dollars and EURO's has increased due to higher
sales and the need to finance the acquisitions. The Zloty has
depreciated 9.4% against the US Dollar in the first nine months of
2000, and has depreciated 4.3% against the EURO.
SEASONALITY
The Company's sales have been historically seasonable with 58.1%
of the sales in 1999 occurring in the second half of the year, of
which over 30% occurred in the last quarter.
The Company expects to experience variability in sales and net
income on a quarterly basis.
The Company's working capital requirements are also seasonal, and
are normally highest in the months of November to December.
Liquidity is then normally improving when collections are made on
the higher sales during the month of January.
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OTHER MATTERS
The Company continues to be involved in litigation from time to
time in the ordinary course of business. In management's opinion,
the litigation in which the Company is currently involved,
individually and in the aggregate, is not material to the
Company's financial condition or results of operations.
During March of 2000 the Company also finalized its acquisition of
Polskie Hurtownie Alkoholi Sp. z o.o. ("PHA") paying approximately
$4 million in cash and 268,126 shares of restricted stock. The
acquisition did not have an effect on operating results for the
first quarter of 2000 although it did effect the second and third
quarters.
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Item 3. Quantitative and Qualitative Disclosures About Marketable Securities
Foreign Currency Risk. Currently all of the Company's loans are denominated in
currencies other than its functional currency, the Polish Zloty, as a result we
have in the three months ended September 30, 2000 experienced significant
foreign exchange exposures. To contain these exposures the Company acquires
fixed period forward exchange contracts matched in denomination and value to the
associated loans. Where a loan is hedged then the net gain or loss on foreign
exchange is amortized over the remaining life of the loan. Where there is no
specific hedge then the impact on results is at the net fair value of the
transactions.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibit
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on form 8-K were filed during the third quarter of 2000
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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: November 14, 2000 By: /s/ WILLIAM V. CAREY
----------------------------------------
William V. Carey
President and Chief Executive Officer
Date: November 14, 2000 By: /s/ NEIL A.M. CROOK
----------------------------------------
Neil A.M. Crook
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -------------------------
27 Financial Data Schedule
22
