_____________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD JANUARY 1, 2002 TO MARCH 31, 2002.
COMMISSION FILE NUMBER 0-24341
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
_____________________________________________________
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 54-18652710
- ------------------------ --------------------
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
1343 MAIN STREET, #301
SARASOTA, FLORIDA 34236
- -------------------------------------- ---------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(941) 330-1558
- ---------------------
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
The number of shares outstanding of each class of the issuer's common stock as
of March 31, 2002:
Common Stock ($.01 par value).................. 5,291,401, shares
_____________________________________________________
INDEX
PAGE
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements ...................................................... 3
Consolidated Condensed Balance Sheets, March 31,
2002 (unaudited) and December 31, 2001 .................................... 3-4
Consolidated Condensed Statements of Income (unaudited) for the
three month periods ended March 31, 2001 and March 31, 2002 ............... 5
Consolidated Condensed Statements of Changes in Stockholders
Equity (unaudited) as of March 31, 2002 ................................... 6
Consolidated Condensed Statements of Cash Flows (unaudited) for
the three month periods ended March 31, 2001 and March 31, 2002 ........... 7
Notes to Consolidated Condensed Financial Statements (unaudited) .......... 8-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................................... 14-16
Item 3. Quantitative and Qualitative Disclosure About Market Risk ................. 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .......................................... 18
Signatures ........................................................................... 19
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
Amounts in columns expressed in thousands
December March 31,
31, 2001 2002
CURRENT ASSETS
Cash and cash equivalents $ 2,466 $ 9,707
Accounts receivable, (net of allowance for doubtful
accounts of $1,930,000 and $2,314,000 respectively) 38,102 28,888
Inventories 9,001 12,083
Prepaid expenses and other current assets 1,560 2, 254
Deferred income taxes 480 523
----------------------
TOTAL CURRENT ASSETS $ 51,609 $ 53,455
Intangible assets, net 3,002 2,872
Goodwill, net 9,969 9,687
Equipment, net 3,372 3,309
Deferred income taxes 411 461
Other assets 614 976
----------------------
TOTAL ASSETS $ 68,977 $ 70,760
======================
See accompanying notes.
3
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) - CONTINUED
Amounts in columns expressed in thousands
December March 31,
31, 2001 2002
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 29,685 $ 25,844
Bank loans and overdraft facilities 9,861 7,426
Current portion of long term debt 1,912 2,160
Current portion of obligations under capital leases 269 196
Income taxes payable 308 363
Taxes other than income taxes 999 611
Other accrued liabilities 1,692 1,422
----------------------
TOTAL CURRENT LIABILITIES 44,726 38,022
Long-term debt, less current maturities 3,344 3,183
Long-term obligations under capital leases 151 268
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock ($0.01 par value, 1,000,000 shares authorized; no shares issued and
outstanding) - -
Common Stock ($0.01 par value, 20,000,000 shares authorized, 4,503,801 and 5,364,301
shares issued at December 31, 2001 and March 31, 2002, respectively) 46 55
Additional paid-in-capital 15,383 23,356
Retained earnings 7,161 7,943
Accumulated other comprehensive loss (1,684) (1,917)
Less Treasury Stock at cost (72,900 shares at December 31, 2001 and March 31, 2002) (150) (150)
----------------------
TOTAL STOCKHOLDERS' EQUITY 20,756 29,287
----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 68,977 $ 70,760
======================
See accompanying notes.
4
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Amounts in columns expressed in thousands
(except per share data)
Three Three
months months
ended ended
March 31, March 31,
2001 2002
Net sales $ 33,602 $ 42,650
Cost of goods sold, excluding depreciation and amortization 29,051 36,771
------------------------
4,551 5,879
Selling, general and administrative expenses, excluding deprecation and amortization 3,303 3,920
Depreciation of equipment 238 234
Amortization of goodwill and trademarks 197 43
Bad debt expense 229 384
------------------------
Operating income 584 1,298
Non operating income (expense)
Interest income 19 30
Interest expense (297) (237)
Realized and un-realized foreign currency transaction gains, (losses), net 216 (99)
Other income, net 14 89
------------------------
Income before taxes 536 1,081
Income tax expense 157 299
------------------------
Net income $ 379 $782
========================
Net income per share of common stock, basic $ 0.09 $ 0.17
========================
Net income per share of common stock, diluted $ 0.09 $ 0.16
========================
See accompanying notes.
5
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
Amounts in columns expressed in thousands
Capital Stock
-------------
Issued In Treasury
------ -----------
No. of Amount No. of Amount Additional Retained Accumulated Total
Shares Shares Paid-in- Earnings Other
Capital Comprehensive
Loss
Balance at December 31, 2001 4,504 $46 73 $(150) $15,383 $7,161 $(1,684) $20,756
Net income for the three months
ended March 31, 2002 782 782
Foreign currency translation
adjustment (233) (233)
-----------------------------------------------------------------------------------
Comprehensive income for the
three months ended March 31,
2002 549
Private placement offering of
Company stock 800 8 7,543 7,551
Stock options issued to
consultants 100 100
Stock options exercised by
employees and non-employees 60 1 330 331
-----------------------------------------------------------------------------------
Balance at March 31, 2002 5,364 $55 73 $(150) $23,356 $7,943 $(1,917) $29,287
===================================================================================
See accompanying notes.
6
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Amounts in columns expressed in thousands
(except per share data)
Three months ended Three months ended
March 31, 2001 March 31, 2002
OPERATING ACTIVITES
Net income 379 782
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation and amortization 435 277
Deferred income tax benefit (16) (93)
Bad debt provision 229 384
Changes in operating assets and liabilities
Accounts receivable 8,148 8,830
Inventories 1,662 (3,082)
Prepayments and other current assets (179) (694)
Trade accounts payable (10,482) (3,841)
Income taxes and other taxes payable (318) (333)
Other accrued liabilities and other assets 524 (439)
---------------------------------------
Net Cash Provided By Operating Activities 382 1,791
INVESTING ACTIVITIES
Purchased of equipment (523) (84)
---------------------------------------
Net Cash Used In Investing Activities (523) (84)
FINANCING ACTIVITIES
Repayments of short-term borrowings and overdraft facilities (30) (2,435)
Proceeds from long-term borrowings - 744
Repayments of long-term borrowings (1,304) (657)
Net proceeds from private placement offering of Company's common stock - 7,551
Stock options exercised - 331
Purchase of treasury shares (30) -
---------------------------------------
Net Cash Provided By (Used In) Financing Activities (1,364) 5,534
---------------------------------------
Net Increase (Decrease) in Cash and cash equivalents (1,505) 7,241
Cash and cash equivalents at beginning of period 2,428 2,466
---------------------------------------
Cash and cash equivalents at end of period $ 923 $ 9,707
=======================================
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES
Common stock issued to consultants $ - $ 100
=======================================
Capital leases $ - $ 60
=======================================
Supplemental disclosures of cash flow information
Interest paid $ 268 $ 185
Income tax paid $ 169 $ 372
See accompanying notes.
7
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
1. ORGANISATION AND DESCRIPTION OF BUSINESS
Central European Distribution Corporation (CEDC) was organized as a
Delaware Corporation in September 1997 to operate as a holding company
through its sole subsidiary, Carey Agri International Poland Sp. z
o.o.(Carey Agri). In 1999 CEDC formed two additional subsidiaries (MTC and
PWW) and in 2000 acquired PHA and in 2001 Astor. CEDC and its subsidiaries
are referred to herein as the Company.
On March 28, 2002, the Company completed a private placement offering of
800,000 unregistered shares of its common stock at $10.50 per share for
gross proceeds of $8,400,000. The funds are to be used primarily for the
acquisition of Damianex S.A. and AGIS S.A., as discussed in note 12.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included and the disclosures
herein are adequate to make the information presented not misleading.
Operating results for the three-month period ended March 31, 2002 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and Subsidiaries'
annual report on Form 10-K for the year ended December 31, 2001.
3. COMPREHENSIVE INCOME
Because the Company's equity investments are substantially all in Polish
Zloty, the gains or losses resulting from the restatement of these equity
investments into U.S. Dollars are posted to the Comprehensive Income
Account. Because of the depreciation of the Polish Zloty against the U.S.
Dollar during the three-month period ending March 31, 2002, the Company
incurred foreign currency translation losses of $233,000 on these equity
investments. This movement means that the cumulative balance on the
Comprehensive Income Account was a loss of $1,917,000 as at March 31, 2002
and this has been reflected in the Consolidated Condensed Balance Sheets
and Statements of Changes in Stockholder's Equity (unaudited). The total of
the accumulated other comprehensive loss consist solely of currency
translation adjustments. No tax benefit has been recorded.
The Company has changed its policy in regards to the repayment of
inter-company debt considered to be of a long-term nature. As a result, the
accumulated foreign exchange loss ($15,000) in regards to the 1,165,000
EURO inter-company loan has been reclassified from accumulated other
comprehensive loss and charged to the statement of operations for the
three month period ended March 31, 2002. The inter-company loan was fully
repaid during the month of April 2002.
8
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
4. EARNINGS PER SHARE
Net income per share of common stock is calculated under the provisions of
SFAS No. 128, "Earnings per Share".
The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated.
Three Months Ended March 31,
-------------------------------------
2001 2002
----------------- ----------------
Basic:
Net income $ 379 $ 782
================= ================
Weighted Average shares of common stock
outstanding 4,332 4,508
================= ================
Basic earnings per share $ 0.09 $ 0.17
================= ================
Diluted:
Net Income $ 379 $ 782
================= ================
Weighted Average shares of common stock
outstanding 4,332 4,508
Net effect of diluted effect of employee
stock options based on the treasury - 180
stock method.
Net effect of diluted effect of stock
options based on the treasury stock
method in regards to IPO options,
warrants, contingent shares from
acquisition and options issued to - 121
consultants
-------------------------------------
Totals 4,332 4,809
=====================================
Diluted earnings per share $ 0.09 $ 0.16
=====================================
During the three month period ended March 31, 2002, 60,500 stock options
were exercised (50,000 non-employee stock options and 10,500 employee stock
options). Warrants granted in connection with the 1998 IPO and employee and
non-employee stock options granted from 1998 to 2001 have been included in
the above calculations of diluted shares since the exercise price is lower
than or equal to the average market price of the common shares during the
three month periods 2002. During the first quarter of 2001, the stock
options were anti-dilutive. The Company is required to issue 80,800 common
shares to Astors's former shareholders as part of the contingency
consideration payout. These shares have been included in the calculation of
diluted earnings per share. The shares are to be issued in the latter part
of May 2002. The shares have an immaterial effect on the Company earnings
per share calculation.
9
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
5. AMORTIZATION OF GOODWILL
The Company has adopted SFAS No. 142 effective January 1, 2002. Under SFAS No.
142 goodwill is no longer amortized but reviewed at the beginning of the fiscal
year for impairment, or more frequently if certain indicators arise. In
addition, the statement requires reassessment of the useful lives of previously
recognized intangible assets.
The Company's carrying value of goodwill is approximately $10 million at March
31, 2002 and is attributable to its only reporting unit - wholesale spirit
division. The Company is required to complete its transitional impairment review
by June 30, 2002. As of the date hereof, the Company does not expect any
impairment loss as a result of such a test when it is completed.
The change in the carrying value of goodwill from December 31, 2001 to March 31,
2002 is a result of translating the Polish zloty amount into US Dollars using
the rate in effect on March 31, 2002.
With the adoption of the statement, the Company ceased amortization of goodwill
as of January 01, 2002. Had the Company been accounting for its goodwill under
SFAS No. 142 for all periods presented, the Company's net income and earnings
per share would have been as follows:
Three months ended March 31,
-----------------------------------
2001 2002
---------------- ---------------
Reported net income $ 379 $ 782
Goodwill 101 -
---------------- ---------------
Adjusted net income $ 480 $ 782
================ ===============
Basic earnings per share of common stock
Reported net income $0.09 $0.17
Goodwill $0.02 -
---------------- ---------------
Adjusted basic earnings per share of common stock $0.11 $0.17
================ ===============
Diluted earnings per share of common stock
Reported net income $0.09 $0.16
Goodwill $0.02 -
---------------- ---------------
Adjusted diluted earnings per share of common stock $0.11 $0.16
================ ===============
The following table reflects the components of intangible assets as of March 31,
2002.
March 31, 2002
----------------
Trademarks $3,943
Less accumulated amortization 1,071
----------------
Total amortized intangible assets $2,872
================
The amortization expense for the three months ended March 31, 2002 was $43,000..
10
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
6. LONG-TERM DEBT AND SHORT-TERM BANK LOANS
Long-term loans December 31, March 31,
2001 2002
----------------------------------
USD $5,256 $4,617
PLN - $ 726
----------------------------------
Total long-term debt $5,256 $5,343
==================================
Current-portion $1,912 $2,160
Long-term portion $3,344 $3,183
During January 2002, the Company obtained a 3 million zloty loan ($726,000)
for its subsidiary -PHA. The loan is repayable over a three-year period.
Principal payments are required to be made semi-annually starting June
2002. The interest rate on the zloty loan is considered to be market. The
loan was to enable its subsidiary PHA to acquire one of the Carey Agri
branches as part of an operational re-organization. The proceeds from the
sale to PHA were used by Carey Agri to reduce its overdraft facilities.
December 31, March 31,
2001 2002
----------------------------------
USD $2,275 $2,132
EUR $1,219 $1,203
PLN $6,367 $4,091
----------------------------------
Total short-term borrowing and overdraft facilities $9,861 $7,426
==================================
7. CAPITAL LEASE OBLIGATIONS
During the three-month period, the Company entered into a number of capital
leases for transportation equipment. The future minimum lease payments for
the assets under capital lease at March 31, 2002 are as follows:
December 31, March 31,
2001 2002
----------------------------------
2002 $280 $147
2003 $157 $196
2004 $167
-
----------------------------------
$437 $510
Less interest (17) (46)
----------------------------------
$420 $464
==================================
11
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
8. INCOME TAXES
Total income tax expense varies from expected income tax expense computed
at Polish statutory rates (34% in 1999 and 30% in 2000) as follows:
Three months ended
March 31, 2001 March 31, 2002
------------------ ------------------
Tax at the Polish Statutory rate $150 $303
Permanent differences and other
items 7 (4)
------------------ ------------------
Income tax expense $157 $299
================== ==================
The enacted corporate income tax rates in Poland were 28% in both 2001 and
2002.
Tax liabilities (including corporate income tax, Value Added Tax, social
security, and other taxes) of the Company's Polish subsidiaries may be
subject to examinations by Polish tax authorities for up to five years from
the end of the year in which the tax is payable. CEDC's US federal income
tax returns are also subject to examination by US tax authorities. As the
application of tax laws and regulations for many types of transactions is
susceptible to varying interpretations, amounts reported in the financial
statements may change at a later date upon final determination by the tax
authorities.
9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in litigation and has claims against it for matters
arising in the ordinary course of business. In the opinion of management,
the outcome will not have a material adverse effect on the Company.
12
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Amounts in tables expressed in thousands
(except per share data)
10. DERIVATIVE FINANCIAL INSTRUMENTS
All derivatives, whether designated in hedging relationships or not, are
recorded on the balance sheet at fair value. The Company uses derivatives
to moderate the financial market risks of its business operations.
Derivative products such as forward contracts are used to hedge the foreign
currency market exposures underlying certain liabilities with financial
institutions. The Company hedging policy is not based on the requirements
of SFAS 133 and therefore may be considered speculative
The Company recorded a $70,000 gain and a $58,000 gain for the three-month
periods ended March 31, 2001 and 2002 respectively, in regards to their
derivative financial instruments. The gains have been recognized in
non-operating income.
12. SUBSEQUENT EVENTS
The Company completed the acquisition of Damianex effective April 22, 2002,
for a cash purchase price of $7,138,000 and 152,996 shares of Company
stock. The shares issued may not be transferred without the Company's
consent for one year subsequent to the acquisition. As part of the purchase
agreement with Damianex, a non-compete agreement was established with the
former stockholders for a period of three years. The acquired company is
based in (pound)ancut, Poland (south-eastern Poland). Damianex S.A. primary
area of activity is the distribution of alcoholic beverages.
The Company completed the acquisition of AGIS S.A. effective April 24,
2002, for a cash purchase price of $4,567,978 and 173,000 shares of Company
stock. The shares issued may not be transferred without the Company's
consent for six months subsequent to the acquisition. As part of the
purchase agreement with AGIS, a non-compete agreement was established with
the former stockholders for a period of three years. The acquired company
is based in Torun, Poland (northern Poland). AGIS S.A. primary area of
activity is the distribution of various spirits, mainly vodka.
The acquisition of Damianex and AGIS was financed using the proceeds from
the Company's recent private placement offering of 800,000 common shares, a
$4.3 million loan taken on April 24, 2002 and the issuance of Company stock
as indicated above.
13. RECLASSIFICATIONS
Certain amounts in the consolidated condensed financial statements have
been reclassified from the prior period to conform to the current period's
presentation.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis should be read in conjunction with the
financial statements and the notes thereto appearing elsewhere in this
report.
OVERVIEW
The Company's operating results are generally determined by the volume
of alcoholic beverages that can be sold by the Company through its
national distribution system, the gross profits on such sales and
control of costs. The Company purchases the alcoholic beverages it
distributes from producers as well as other importers and wholesalers.
Almost all such purchases are made with the sellers providing a period
of time, generally between 25 and 90 days, before the purchase price
is to be paid by the Company.
Since the initial public offering, in July 1998, the Company pays cash
on delivery for 40-50% of its domestic vodka purchases in order to
receive additional discounts. The Company sells the alcoholic
beverages with a mark-up over its purchase price, which mark up
reflects the market price for such individual product brands in the
Polish market. The Company's bad debt ratio provision as a percentage
of net sales was 0.39% in 1999, 0.39% in 2000, 0.68% in 2001, and 0.9%
for the three- month period ended March 31, 2002.
The following comments regarding variations in operating results
should be read considering the rates of inflation in Poland during the
period, 3.6% in 2001 and 1.1% for the three months ended March 31,
2002 - as well as the movement of the Polish Zloty compared to the
U.S. Dollar. The Zloty appreciated 0.1% against the U.S. Dollar in
2001. For the three-month period ended March 31, 2002, the Zloty
depreciated 3.7% against the U.S. Dollar.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 2001
Net sales increased $9.0 million, or 26.9% from $33.6 million to $42.6
million. This increase is due to the inclusion of Astor for the three
months to March 31, 2002, and organic growth. The inclusion of Astor
for the three-months to March 31, 2002, accounted for $4.6 million or
13.7% of the increase. The remainder of $4.4 million or 13.2%, was
attributable to the increased market penetration of the existing
distribution system.
Cost of goods sold increased $7.7 million, or 26.6% from $29.1 million
in 2001 to $36.8 million in 2002. This increase is again mainly due to
the inclusion of Astor's cost of goods sold for the 2002 quarter which
accounted for $4.2 million or 14.4% of the increase. The remainder
being $3.5 million or 12.1% is attributable to the increase in the
business activity.
Gross margin (excluding depreciation and amortization) increased $1.3
million from $4.6 million in 2001 to $5.9 million in 2002. Of this
increase $0.4 million relates to the inclusion of Astor in the current
quarter, the balance being due to internal growth. As a percentage of
sales, gross margin increased 0.3% from 13.5% in 2001 to 13.8% in
2002. The gross margin generated from ongoing operation was 14.4%.
This internal growth is due to the buying leverage available to the
group.
Selling, general and administrative expenses (excluding depreciation
and amortization) increased $617,000, or 18.7% from $3,303,000 in 2001
to $3,920,000 in 2002. Of this increase $226,000 relates to Astor,
with the balance of $391,000 being generated from ongoing operations.
As a percentage of net sales, selling, general and administrative
expenses decreased from 9.8% to 9.2%. Provision for doubtful debts
increased $155,000 from $229,000 in 2001 to $384,000 in 2002. As a
percentage to sales the provision was 0.7% of sales in 2001 whilst in
2002 it increased to 0.9%.
Amortization of goodwill and trademark reduced $154,000 from $197,000
in 2001 to $43,000 in 2002. This is entirely due to the changes in US
GAAP, which, remove the requirement for the Company to amortize the
carrying value of its acquired goodwill. Instead, the Company will be
14
required to perform regular reviews of the carrying value of goodwill
and make any reductions should there be an impairment in value.
Operating profit increased by $0.7 million from $0.6 million in 2001
to $1.3 million in 2002. Of this increase $174,000 relates to Astor
the remainder $0.5 million, or 92% has been generated from on-going
operations.
Interest expense decreased $60,000 from $297,000 in 2001 to $237,000
in 2002. This decrease is due to the increased working capital
efficiency and the cash flow being generated from operations. Interest
income increased $11,000 from $19,000 in 2001 to $30,000 in 2002.
Net realized and un-realized foreign currency transaction losses
increased $315,000 from a profit of $216,000 in 2001 to a loss of
$99,000 in 2002. During the three months ended March 31, 2002, the
zloty, in which a substantial portion of the Company's assets are
denominated, depreciated 3.7% versus the U.S. Dollar, whereas for the
same period ended March 31, 2001, it appreciated 1.0%.
Income tax expense increased $142,000 from $157,000 in 2001 to
$299,000 in 2002. This increase is mainly due to the increase in
income before taxes from $536,000 to $1,081,000, respectively.
The effective tax rate decreased from 29.3% in 2001 to 27.7% in 2002.
Net income increased $403,000 from $379,000 in 2001 to $782,000 in
2002. This increase is due to the factors noted above. The increase is
partly due to the results from Astor which amounted to $107,000, the
balance $675,000 being generated from ongoing operations. The internal
growth on earnings was 78%.
STATEMENT OF LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash balance increased by $7.2 million in the first
three months of 2002 compared to a decrease of $1.5 million in the
corresponding period of 2001. The increase was primarily as a result
of the proceeds from the Private Placement of equity, which, was
completed in March 2002. These funds were used to complete the
acquisitions made in April of 2002 and which are explained in note 12
above.
The net cash provided by operating activities was $1.8 million in the
three months to March 31, 2002. This compares to a positive $0.4
million generated in the similar period of 2001.
The investing activities amount to $84,000 in the three months to
March 31, 2002 and were primarily due to IT system upgrades and
vehicle replacements. During the same period for 2001 investing
activities amounted to $0.5 million.
Financing activities resulted in a net increase in cash of $5.5
million. This was mainly due to the proceeds of the private placement
of equity, which generated a net $7.5 million.
The Company began 2002 with debts of $15.5 million and in the first
three-months of 2002 the Company repaid debts of $3.1 million (2001:
$1.4 million) and incurred new borrowings of $0.8 million (including
capital leases). As at March 31, 2002 the Company had total third
party debts of $13.2 million.
The amount of the Company's stockholders' equity is directly affected
by foreign currency translation adjustments. In the first three months
of 2002, such adjustments resulted in a cumulative comprehensive loss
of $1.9 million. See note 3 to the condensed consolidated financial
statements for further information.
STATEMENT ON INFLATION AND CURRENCY FLUCTUATIONS
Inflation in Poland is projected at 3.5% for the whole of 2002,
compared to 3.6% for 2001. For the first three months of 2002,
inflation was 1.1%. The share of purchases denominated in non-Polish
currency has decreased resulting in lower foreign exchange exposure
for purchases. The Zloty has depreciated 3.7% against the US Dollar in
the first three months of 2002.
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SEASONALITY
The Company's sales have been historically seasonable with around
20.0% of the sales in 2001 occurring in the first quarter of the year
and over 30% occurred in the last quarter.
The Company expects to experience variability in sales and net income
on a quarterly basis.
The Company's working capital requirements are also seasonal, and are
normally highest in the months of November to December. Liquidity is
then normally improving when collections are made on the higher sales
during the month of January.
OTHER MATTERS
The Company continues to be involved in litigation from time to time
in the ordinary course of business. In management's opinion, the
litigation in which the Company is currently involved, individually
and in the aggregate, is not material to the Company's financial
condition or results of operations.
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ITEM 3: Quantitative and Qualitative Disclosures About Marketable Securities
Foreign Currency Risk. Currently some of the Company's loans are
denominated in currencies other than its functional currency, the
Polish Zloty. As a result in the three months ended March 31, 2002,
the Company experienced significant foreign exchange movements. To
contain these exposures the Company acquires fixed period forward
exchange contracts. For further information see Note 10 above.
During the first quarter the Company entered into a foreign currency
collar derivative the objective of which was to reduce the cost of its
normal hedging instruments currently used. The Company received a fee
of approximately $145,000 for these instruments. Because these
instruments have maturity dates of June and September 2002, fees
received have been deferred until such time these instruments mature.
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PART II. OTHER INFORMATION
IITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On March 28, 2002, the Company completed a private placement offering
of 800,000 shares of its common stock at $10.50 per share receiving
gross proceeds of $8,400,000. The shares were offered and sold to
certain persons meeting the definition of "accredited investor,"
under Rule 501(a) promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended. The Company
paid its placement agent a fee of 6.5% plus expenses. The securities
were issued in reliance on the exemptions from the registration
provided by Regulation D and Regulation S.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibit
27. Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended March 31, 2002 the Company filed the
following 8K reports;
1. Announcement of the Damianex acquisition, filed on January
10, 2002.
2. Announcement of the AGIS acquisition, filed on February 21,
2002.
3. Announcement of the private placement of 800,000 shares of
common stock, filed March 28, 2002.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
CENTRAL EUROPEAN DISTRIBUTION CORPORATION
(registrant)
Date: May 15, 2002 By: /s/ WILLIAM V. CAREY
----------------------------------------
William V. Carey
President and Chief Executive Officer
Date: May 15, 2002 By: /s/ NEIL A.M. CROOK
----------------------------------------
Neil A.M. Crook
Chief Financial Officer
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