----------------------------------------------------------------
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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
JANUARY 1, 2001 TO MARCH 31, 2001.
COMMISSION FILE NUMBER 0-24341
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
----------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 54-18652710
------------- ----------------
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
1343 MAIN STREET, #301
SARASOTA, FLORIDA 34236
----------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(941) 330-1558
- -------------------------------
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
The number of shares outstanding of each class of the issuer's common stock as
of March 31, 2001:
Common Stock ($.01 par value)............................... 4,329,456 shares
-----------------------------------------------------------
1
INDEX
PAGE
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements ..................................................... 3
Consolidated Condensed Balance Sheets, March 31,
2001 (unaudited) and December 31, 2000 ................................... 3
Consolidated Condensed Statements of Income (unaudited) for the
three month periods ended March 31, 2000 and March 31, 2001............... 5
Consolidated Condensed Statements of Changes in Stockholders'
Equity (unaudited) as of March 31, 2001................................... 6
Consolidated Condensed Statements of Cash Flows (unaudited) for
the three month periods ended March 31, 2000 and March 31, 2001.......... 7
Notes to Consolidated Condensed Financial Statements (unaudited).......... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................... 15
Item 3. Quantitative and Qualitative Disclosure About Market Risk................. 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................... 19
Signatures............................................................................ 20
2
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, March 31,
2000 2001
CURRENT ASSETS
Cash and cash equivalents $2,428 $ 923
Accounts receivable, (net of allowance for doubtful
accounts of $1,230,000, and $1,459,000 respectively) 30,983 22,606
Inventories 9,557 7,895
Prepaid expenses and other current assets 809 988
Deferred income taxes 416 491
------------------------
TOTAL CURRENT ASSETS $ 44,193 $ 32,903
Intangible assets, net 11,471 11,232
Equipment, net 3,031 3,348
Deferred income taxes 80 21
Other assets 536 758
------------------------
TOTAL ASSETS $ 59,311 $ 48,262
========================
See accompanying notes.
3
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) - CONTINUED
Amounts in columns expressed in thousands
(except per share data)
December March 31,
31, 2000 2001
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 26,399 $ 15,917
Bank loans and overdraft facilities 1,383 1,451
Current portion of long term debt 5,400 5,302
Income taxes payable 35 74
Taxes other than income taxes 928 475
Other accrued liabilities 686 1,210
------------------------
TOTAL CURRENT LIABILITIES 34,831 24,429
Long term debt, less current maturities 7,988 6,684
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock ($0.01 par value, 1,000,000 shares authorized; no shares issued and
outstanding) - -
Common Stock ($0.01 par value, 20,000,000 shares authorized, 4,402,356 shares issued at
December 31, 2000 and March 31, 2001, respectively) 45 45
Additional paid-in-capital 14,175 14,175
Retained earnings 4,635 5,014
Accumulated other comprehensive loss (2,243) (1,935)
Less Treasury Stock at cost (64,100 shares at December 31, 2000 and 72,900 shares at
March 31, 2001) (120) (150)
------------------------
TOTAL STOCKHOLDERS' EQUITY 16,492 17,149
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 59,311 $ 48,262
========================
See accompanying notes.
4
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Amounts in columns expressed in thousands
(except per share data)
Three Three
months months
ended ended
March 31, March 31,
2000 2001
Net sales $ 18,720 $ 33,602
Cost of goods sold 15,920 29,051
-------------------------
Gross Margin 2,800 4,551
Sales, general and administrative expenses 1,884 3,303
Depreciation of equipment 100 238
Amortization of goodwill and trademark 134 197
Bad debt expense 435 229
-------------------------
Operating income 247 584
Non operating income (expense)
Interest income 56 19
Interest expense (136) (297)
Realized and unrealized foreign exchange (loss) gain, net (91) 216
Other (expenses) income, net (42) 14
-------------------------
Income before taxes 34 536
Income tax expense 11 157
-------------------------
Net income $ 23 $379
=========================
Net income per share of common stock, basic and diluted $0.01 $ 0.09
=========================
See accompanying notes.
5
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
Amounts in columns expressed in thousands
(except per share data)
Capital Stock
Issued In Treasury
No. of Amount No. of Amount Additional Retained Accumulated Total
Shares Shares Paid-in- Earnings Other
Capital Comprehensive
Loss
Balance at December 31, 2000 4,402 $45 64 $(120) $14,175 $4,635 $(2,243) $16,492
Net income for the three months
ended March 31, 2001 379 379
Foreign currency translation
adjustment 308 308
----------------------------------------------------------------------------------------
Comprehensive income for the
three months ended March 31, 2001 379 308 687
Treasury shares purchased 9 (30) (30)
----------------------------------------------------------------------------------------
Balance at March 31, 2001 4,402 $45 73 $(150) $14,175 $5,014 $(1,935) $17,149
========================================================================================
See accompanying notes.
6
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Amounts in columns expressed in thousands
(except per share data)
Three months Three months
ended March 31, ended March 31,
2000 2001
OPERATING ACTIVITES
Net income 23 379
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation and amortization 234 435
Deferred income tax benefit - (16)
Bad debt provision 435 229
Changes in operating assets and liabilities
Accounts receivable (7,413) 8,148
Inventories (1,147) 1,662
Prepayments and other current assets (1,937) (179)
Trade accounts payable 8,205 (10,482)
Income and other taxes 1,470 (318)
Other accrued liabilities and other 1,555 524
--------------------------------
Net Cash Provided By Operating Activities 1,425 382
INVESTING ACTIVITIES
Purchases of equipment (288) (523)
Acquisition of subsidiary (3,855) -
--------------------------------
Net Cash Used In Investing Activities (4,143) (523)
FINANCING ACTIVITIES
Borrowings on overdraft facility - 68
Payments of overdraft facility (171) -
Payment of short term borrowings (502) (98)
Long term borrowings 4,000 -
Payments of long term borrowings - (1,304)
Purchase of treasury shares - (30)
--------------------------------
Net Cash Provided By (Used In) Financing Activities 3,327 (1,364)
--------------------------------
Net Increase (Decrease) in Cash and cash equivalents 609 (1,505)
Cash and cash equivalents at beginning of period 3,115 2,428
--------------------------------
Cash and cash equivalents at end of period $ 3,724 $923
================================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Common stock issued in connection with investment in subsidiary $ 1,278 -
================================
Supplemental disclosures of cash flow information
Interest paid $ 136 $ 268
Income taxes paid $ 635 $ 169
See accompanying notes.
7
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
1. ORGANISATION AND DESCRIPTION OF BUSINESS
Central European Distribution Corporation (CEDC) was organized as a
Delaware Corporation in September 1997 to operate as a holding company
through its sole subsidiary, Carey Agri International Poland Sp. z
o.o.(Carey Agri). In 1999 CEDC, following two acquisitions 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 three
months period ended March 31, 2001 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2001.
The balance sheet at December 31, 2000 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, 2000.
3. COMPREHENSIVE INCOME
During the three months period ended March 31, 2001, the Company
incurred foreign currency translation gains of $308,000, and reported
an accumulated other comprehensive loss of $1,935,000 as of March 31,
2001 as reflected in the Consolidated Condensed Statement of Changes
in Stockholders' Equity (unaudited). The gain was due to the currency
fluctuations, largely between the Polish Zloty and the US Dollar, and
local currency translation movements on USD transactions with the
parent Company of a long-term investment nature. No deferred tax
benefit is recorded on the accumulated other comprehensive loss as it
is CEDC's current intention to reinvest subsidiary earnings. The total
of the accumulated other comprehensive loss consists solely of currency
translation adjustments.
8
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
4. EARNINGS PER SHARE
Net income per share of common stock is calculated under the provisions
of SFAS No. 128, "Earnings per Share". The increase in the weighted
average shares of common stock in 2001 gives effect to the acquisition
of "PHA" in 2000.
The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated.
Three Months Ended March 31,
2000 2001
Basic:
Net income $ 23 $ 379
=========== ===========
Weighted Average shares of common
stock outstanding 4,137 4,332
=========== ===========
Basic EPS $ 0.01 $0.09
=========== ===========
Diluted:
Net Income $ 23 $ 379
=========== ===========
Weighted Average shares of common
stock outstanding 4,137 4,332
=========== ===========
Net effect of dilutive stock options-
based on the treasury stock method - -
Totals 4,137 4,332
=========== ===========
Diluted EPS $0.01 $0.09
=========== ===========
No stock options have been exercised during the first quarter of 2001.
Warrants granted in connection with the 1998 Initial Public Offering
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 2000 and 2001.
9
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
5. ACQUISITIONS
On March 31, 2000, the Company purchased 100% of the voting shares of
Polskie Hurtownie Alkoholi Sp. z o.o. (PHA) for $4.0 million cash and
268,126 shares of Common Stock. The shares issued may not be sold
without the Company's consent for three years subsequent to the
acquisition. As part of the purchase agreement with PHA, a non-compete
agreement was established with the former stockholders for a period of
three years.
The acquisition was accounted for as a purchase. Accordingly, the
assets and liabilities of the acquired business are included in the
consolidated financial statements as of March 31, 2000.
The Company obtained an independent valuation for this acquisition. The
cost of the acquisition was allocated to the tangible assets acquired
based on the fair values at dates of acquisition and estimated values
per the valuation report. The excess ($5,490,000) of the cost over the
amounts allocated as described above represents goodwill. The purchase
price allocations was finalized during the first quarter of 2001. No
significant adjustments were recognized with respect to the
finalisation of the purchase price allocations.
The pro forma unaudited results of operations for the three month
period ended March 31, 2000 assuming the consummation of this
acquisition and issuance of the common stock as of January 1, 2000 are
disclosed below.
Three months ended
March 31, 2000 March 31, 2001
-------------- --------------
Net sales $28,193 $ 33,602
Net income(loss) (94) 379
Net income(loss) per share data:
--------------- ---------------
Basic and diluted $ (0.02) $ 0.09
=============== ===============
10
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
6. LONG-TERM DEBT AND SHORT-TERM BANK LOANS
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 instalments of $212,500 commencing August 20, 2001. In
the three months ended March 31, 2001 the Company repaid $100,000.
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 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. In January 2001 both of these
loans were converted to a EURO loan of 734,982 with a review date of
January 2002. The interest rate is 3 month EURIBOR plus 0.8%.
During 1999, the Company acquired a long term U.S. Dollar loan of
$3,500,000. The loan stipulated a principle repayment of $1,765,000
during 2000 with the balance payable in February 2001. During the three
months to March 31, 2001 the Company repaid an additional $782,900 and
negotiated an extension of the balance until June 2001. The loan may be
repaid in USD with an annual interest rate of LIBOR plus 1.85%, or in
DEM with an annual interest rate of EURIBOR plus 1.95% or in Swiss
Francs with an annual interest rate of LIBOR plus 2.25%. The loan was
collateralised by bill of exchange issued by the Company.
During April 1999, the Company obtained a $1,500,000 USD denominated
long-term loan. The interest on this loan is at 3 month LIBOR plus
1.4%. This loan has been extended to April 2002 as part of a frame
agreement.
11
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 enacted Polish statutory rates (30% in 2000 and 28% in
2001) as follows:
Three months ended
March 31, 2000 March 31, 2001
-------------- --------------
Tax at the Polish Statutory rate $10 $150
Permanent differences and other items 1 7
--------------- --------------
Income tax expense $11 $157
=============== ==============
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.
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 a 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. SHARE REPURCHASE PROGRAM
On November 27, 2000 the Company's Board of Directors authorized a
share repurchase program to purchase up to 200,000 shares in the open
market. In 2000, the Company purchased 64,100 shares in the open market
for $120,000 including costs. In the first three months of 2001, the
Company purchased an additional 8,800 shares for $30,000 including
costs. These shares have been treated as treasury stock and are
accounted for by means of a reduction to the outstanding capital stock.
The Company may purchase the remaining authorized shares over the next
nine months on the open market.
12
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
10. DERIVATIVE FINANCIAL INSTRUMENTS
Effective January 1, 2001, the Company adopted SFAS 133 (as amended by SFAS
138), which establishes accounting and reporting standards for financial
derivative instruments. All derivatives, whether designated as hedging
relationships or not, are required to be recorded on the balance sheet at
fair value. The Company uses derivatives to moderate the financial market
risks of its business operations. Derivative products such as forward
contracts are used to hedge the foreign currency market exposures
underlying certain liabilities in currencies other than the U.S. Dollar
with financial institutions. The Company's accounting policy for these
instruments is based on its designation of the instruments as hedging
transactions. An instrument is designated as a hedge based in part on its
effectiveness in risk reduction and one-to-one matching of derivatives on
the balance sheet at fair value.
The Company has designated its forward contracts as fair value hedges
(i.e., hedging the exposure to changes in the fair value of the foreign
denominated bank loans), the gain or loss on the derivative instrument as
well as the offsetting gain or loss on the hedged item attributable to the
hedged risk are recognized in earnings in the current period.
The adoption of SFAS 133 on January 1, 2001, resulted in no cumulative
adjustment to OCL.
For currency forward contracts, effectiveness is measured by using the
forward-to-forward rate compared to the underlying economic exposure. The
ineffective portion recognized in non-operating income is a $70,000 gain.
13
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
11. SUBSEQUENT EVENTS
The Company completed the acquisition of substantially all (97%) of the
common stock of Astor Sp. z o.o. effective April 5, 2001, for a cash
purchase price of $1,200,000 and 30,000 shares of CEDC stock ($95,000).
The shares issued may not be sold without the Company's consent for two
years subsequent to the acquisition. As part of the purchase agreement
with Astor, a non-compete agreement was established with the former
stockholders for a period of two years. The terms of the agreement
allow for additional payment of both cash and Company stock (40/60
split) which is contingent upon Astor Sp. z o.o. achieving a certain
profit target. The contingent payment is based upon five times the
accumulated average after tax profit over the next three years of the
acquired company. The Company anticipates that the final acquisition
price (after adjustment for the above contingent payment) will total
approximately $1,900,000. The acquired company is based in Olsztyn,
Poland. Astor Sp. z o.o. primary area of activity is the distribution
of various spirits.
The acquisition of the common stock of Astor Sp. z o.o. will be
accounted for as a purchase. As such, the excess of the preliminary
purchase price over the estimated fair value of the acquired net assets
($100,000) which approximates $1,800,000 USD will be recorded as
goodwill.
The acquisition price was financed using the Company's loan facilities
and issuance of Company stock as indicated above.
The following unaudited pro forma results of operations of the Company
give effect to the acquisition of Astor Sp. z o.o. as though the
transaction had occurred on January 1, 2001.
Three months ended
March 31, 2001
------------------
Net sales $ 37,746
Net income 481
Net income per share data:
------------------
Basic and diluted $0.11
==================
The unaudited pro forma financial information presented is not
necessarily indicative of the results of operations that would have
occurred had the acquisition taken place on January 1, 2001.
Comparative pro forma financial information has not been presented for
the three months period ended March 31, 2000, as the acquired Company
was not established until the latter part of 2000.
12. RECLASSIFICATIONS
Certain amounts in the consolidated condensed financial statements have
been reclassified from prior period to conform to the current year
presentation.
14
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 0.17% in 1998, 0.28% in 1999, 0.39% in 2000, and
0.68% for the three months period ended March 31, 2001.
The following comments regarding variations in operating results
should be read considering the rates of inflation in Poland during
the period, 8.5% in 2000 and 6.2% for the three months ended March
31, 2001 - as well as the movement of the Polish Zloty compared to
the U.S. Dollar. The Zloty appreciated 0.1% against the U.S. Dollar
in 2000. For the three months period ended March 31, 2001, the Zloty
appreciated 1.0% against the U.S. Dollar.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 2000
Net sales increased $14.9 million, or 79% from $18.7 million to $33.6
million. This increase is mainly due to the inclusion of PHA's sales
for the 2001 quarter which, accounted for $11.2 million or 75% of the
increase. The remainder being $3.7 million or 25% is attributable to
the increased market penetration of the existing distribution system.
Cost of goods sold increased $13.1 million, or 82%, from $16.0
million in 2000 to $29.1 million in 2001. This increase is again
mainly due to the inclusion of PHA's cost of goods sold for the 2001
quarter which accounted for $10.0 million or 76.3% of the increase.
The remainder being $3.1 million or 23.7% is attributable to the
increase in the business activity. As a percentage of net sales, cost
of goods sold increased from 85.1% to 86.5%. This increase is caused
by the higher proportion of low margin products in the total sales
mix brought about by the acquisition of PHA.
Selling, general and administrative expense as a total increased $1.4
million, or 75% from $1.9 million in 2000 to $3.4 million in 2001.
This increase is mainly due to the inclusion of PHA's overheads of
$0.8 million for the 2001 quarter only. The balance of $0.6 million
relates to on going operations resulting from the expansion of sales
noted above. As a percentage of net sales, selling, general and
administrative expenses decreased from 10.4% to 9.8%. Core cash
backed operating costs as a percentage of sales remained stable at
10% of net sales.
Interest expense increased $161,000 from $136,000 in 2000 to $297,000
in 2001. This increase is mainly due to additional borrowings for the
acquisitions. Interest income decreased $37,000 from $56,000 in 2000
to $19,000 in 2001. This other income was mainly due to cash invested
in short-term deposits.
Net realized and unrealized foreign currency transactions improved
$307,000 from a loss of $91,000 in 2000 to a gain of $216,000 in
2001. During the three months ended March 31, 2001, the zloty, in
which a substantial portion of the Company's assets are denominated,
appreciated 1.0% versus the U.S. Dollar.
15
Income tax expense increased $146,000 from $11,000 in 2000 to
$157,000 in 2001. This increase is mainly due to the increase in
income before taxes from $34,000 to $536,000, respectively.
The effective tax rate decreased from 32.4% in 2000 to 29.3% in 2001.
Net income increased $356,000 from $23,000 in 2000 to $379,000 in
2001. This increase is due to the factors noted above.
STATEMENT OF LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash balance decreased by $1.5 million in the first
three months of 2001 compared to an increase of $0.6 million in the
corresponding period of 2000, primarily as a result of the repayment
of debt.
The net cash provided by operating activities decreased by $1.0
million in 2001 to a positive $0.4 million compared to a positive
$1.4 million in 2000. The decrease is due to quicker repayment of
suppliers in order to maximise settlement discounts.
The investing activities amount to $0.5 million in the 2001 period
and are primarily due to investments in distribution depots, IT
system upgrades and vehicle replacements. During the 2000 period the
investing activities amounted to $4.1 million of which the largest
part was the acquisition of PHA.
Financing activities resulted in a decrease of $4.7 million due to
the repayment of EURO and U.S. Dollar denominated loans in the 2001
period, whereas in 2000 the Company borrowed funds.
The Company began 2001 with bank overdrafts, short and long term
debts of $14.8 million and in the first three-months of 2001 the
Company reduced this debt by $1.4 million. As at March 31, 2001 the
Company had total third party debts of $13.4 million.
The amount of the Company's stockholders' equity is directly affected
by foreign currency translation adjustments. In the first three
months of 2001, such adjustments reduced the cumulative comprehensive
loss to $1.9 million. See note 3 to the condensed consolidated
financial statements for further information.
STATEMENT ON INFLATION AND CURRENCY FLUCTUATIONS
Inflation in Poland is projected at 6.2% for the whole of 2001,
compared to 8.5% for 2000. For the first three months of 2001,
inflation was 6.4%. The share of purchases denominated in non-Polish
currency has decreased resulting in lower foreign exchange exposure
for purchases. The Zloty has appreciated 1.0% against the US Dollar
in the first three months of 2001, and has appreciated 6.2% against
the EURO.
16
SEASONALITY
The Company's sales have been historically seasonable with around
20.0% of the sales in 2000 occurring in the first quarter of the year
and over 30% occurred in the last quarter.
The Company expects to experience variability in sales and net income
on a quarterly basis.
The Company's working capital requirements are also seasonal, and are
normally highest in the months of November to December. Liquidity is
then normally improving when collections are made on the higher sales
during the month of January.
OTHER MATTERS
The Company continues to be involved in litigation from time to time
in the ordinary course of business. In management's opinion, the
litigation in which the Company is currently involved, individually
and in the aggregate, is not material to the Company's financial
condition or results of operations.
17
ITEM 3: Quantitative and Qualitative Disclosures About Marketable Securities
Foreign Currency Risk. Currently all of the Company's loans
(excluding bank overdrafts) are denominated in currencies other than
its functional currency of its subsidiaries, the Polish Zloty, as a
result we have in the three months ended March 31, 2001 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. For further
information see Note 10.
18
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibit
None
(b) Reports on Form 8-K
No reports on form 8-K were filed during the first quarter of 2001
(c) Financial Statement Schedules
None
19
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
(registrant)
Date: May 15, 2001 By: /s/ WILLIAM V. CAREY
-------------------------------------
William V. Carey
President and Chief Executive Officer
Date: May 15, 2001 By: /s/ NEIL A.M. CROOK
-------------------------------------
Neil A.M. Crook
Chief Financial Officer
20