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CEDC Second Quarter 2009 Results; Acquires Additional 6% Stake in The Russian Alcohol Group

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Central European Distribution Corporation (NASDAQ:CEDC) today announced its results for the second quarter of 2009. Net Sales for the three months ended June 30, 2009 were $362.1 million as compared to $421.3 million reported for the same period in 2008, which represents a decline of 14% driven primarily by the 33% average devaluation of our primary functional currencies.

On a comparable basis, CEDC announced net income of $18.6 million, or $0.38 per fully diluted share, for the second quarter of 2009, as compared to $22.7 million, or $0.52 per fully diluted share, for the same period in 2008, which represents an 18% decline driven primarily by the 33% average devaluation of our primary functional currencies described above. The net income on a U.S. GAAP basis (as hereinafter defined) for the quarter was $213.7 million or $4.00 per fully diluted share, as compared to net income of $46.0 million or $1.06 per fully diluted share, for the same period in 2008. As a result of the renegotiated agreements between CEDC and Lion Capital concluded in April 2009 for the staged acquisition of the equity tranches in RAG held by Lion Capital, these results include the first time consolidation of the Russian Alcohol Group, which was previously accounted for as an equity investment. The major difference between the U.S. GAAP net income and comparable non- GAAP net income reflects unrealized foreign exchange movements relating to our foreign currency denominated financing and a one-time net gain on the revaluation of our initial equity investment in the Russian Alcohol Group realized in connection with the initial consolidation of the Russian Alcohol Group financials in the second quarter of 2009. The weighted average number of shares used for calculating diluted earnings per share on a comparable basis for the second quarter of 2009 was 49.4 million, whereas for U.S. GAAP purposes the weighted average number of shares was 53.4 million, with the difference due to four million shares not yet issued, but to be issued in the future, as part of the agreement with Lion Capital referred to above. For a reconciliation of comparable net income to net income reported under United States Generally Accepted Accounting Principles (“U.S. GAAP”), please see the section “Unaudited Reconciliation of Non-GAAP Measures”.

William Carey, President and CEO commented, “In light of the soft consumer environment that we are currently facing, we continue to outperform our main competitors in our core markets, led by increasing market share gains of our core vodka brands as well as continued growth of our import and export businesses. Our continued focus on streamlining the business is starting to show positive results in driving improved gross and operating margins. Our cost reduction initiatives and working capital reductions have contributed to our strong cash flow generation in the second quarter of 2009, with $56.7 million of operating cash flow.”

Mr. Carey continued, “We believe the transparency of our core operations has been greatly enhanced with the consolidation of the Russian Alcohol Group (“RAG”) financials during the second quarter of 2009. RAG was previously accounted for as an equity investment. RAG is the largest vodka producer in Russia and has shown continued strong market share gains during the second quarter. RAG has also been focused on significant cost reductions over the first five months of this year, which should start to flow through in the second half of this year in our financial results. We are also pleased to have closed the acquisition of an additional 6% stake in the Russian Alcohol Group, as a result of the acquisition of equity held by various minority investors in RAG on August 3rd, 2009 for a consideration of $30 million.”

Mr. Carey also said, “We have seen reduced inventory levels in the trade during the quarter and have also seen commodity prices remain at year lows which has positively impacted our operating results for the 2nd quarter. As sentiment for emerging markets has improved during the second quarter, we have seen a strong rebound in the strength of local currencies, which is also positively impacting the margins on our import business. With management’s continued drive to improve working capital and overall streamlining of the business, we expect to see continued improvements in our margins in the second half of this year, with the expansion of gross margins to reach 35%-36% and operating margins to reach 17%-18% in the fourth quarter 2009.”

Mr. Carey continued, “As we look into the second half of the year the Company is well positioned to take advantage of a consumer pick up with a larger market share and a lower underlying cost base. Our recently completed equity offering has provided the necessary capital to forge ahead with our acquisition of an additional stake in RAG, resulting from the acquisition of certain of the minority interests, as well as our planned buy outs of the minority interests in our Parliament businesses, so that we can faster implement synergies (expected to reach $30 to $40 million annualized) which should start to take effect in the year 2010. We expect to realize these synergies over the course of the next two to three years, driven from a combination of cost cutting as well as top line portfolio leverage and sales growth. With continued strong cash flow generation in our business thus reducing our net operating leverage, as well as the proceeds of the recent equity offering, we believe the Company’s balance sheet is properly capitalized to meet its near term obligations.”

The Company also reconfirms its full year 2009 net sales guidance of $1.55-$1.68 billion and its full year comparable fully-diluted earnings per share guidance of $2.40 – $2.65.

CEDC has reported net income and fully diluted net income per share in accordance with GAAP and on a non-GAAP basis, referred to in this release as comparable non-GAAP net income. CEDC’s management believes that the non-GAAP reporting giving effect to the adjustments shown in the attached reconciliation provides meaningful information and an alternative presentation useful to investors’ understanding of CEDC’s core operating results and trends. CEDC discusses results and guidance on a comparable basis in order to give investors better insight into underlying business trends from continuing operations. CEDC’s calculation of these measures may not be the same as similarly named measures presented by other companies. These measures are not presented as an alternative to net income computed in accordance with GAAP as a performance measure, and you should not place undue reliance on such measures. A reconciliation of GAAP to non-GAAP measures can be found in the section “Unaudited Reconciliation of Non-GAAP Measures” at the end of this press release.

CEDC is the largest vodka producer in Poland and produces the Absolwent, Zubrowka, Bols and Soplica brands, among others. CEDC currently exports Zubrowka to many markets around the world, including the United States, England, France and Japan. CEDC also produces and distributes Royal Vodka, the top selling vodka in Hungary, and produces Parliament Vodka, the leading sub-premium vodka in Russia. CEDC also has an equity stake in the Russian Alcohol Group which produces Green Mark, the number one selling vodka in Russia along with Zhuravli, another top-selling sub-premium vodka in Russia.

CEDC also is the leading national distributor of alcoholic beverages in Poland by value, and a leading importer of alcoholic beverages in Poland and Hungary. In Poland, CEDC imports many of the world’s leading brands, including brands such as Carlo Rossi Wines, Concha y Toro wines, Metaxa Brandy, Remy Martin Cognac, Guinness, Sutter Home wines, Grant’s Whisky, Jagermeister, E&J Gallo, Jim Beam Bourbon, Sierra Tequila, Teacher’s Whisky, Campari, Cinzano, Skyy Vodka and Old Smuggler. CEDC is also a leading importer of premium spirits and wines in Russia with such brands as Hennessey, Moet & Chandon and Concha y Toro, among others.

This press release contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding expected sales and earnings guidance, expected gross margins and operating margins, cost reduction and working capital initiatives, our planned buy-outs of the minority interest in Parliament, our ability to complete and fund our acquisition of Russian Alcohol, and expected results of, and synergies relating to, our Russian businesses. Forward looking statements involve known and unknown risks and uncertainties that may cause the actual results, performance or achievements of CEDC to be materially different from any future results, performance or achievements expressed or implied by our forward looking statements.

Investors are cautioned that forward looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements. CEDC undertakes no obligation to publicly update or revise any forward looking statements or to make any other forward looking statements, whether as a result of new information, future events or otherwise, unless required to do so by securities laws. Investors are referred to the full discussion of risks and uncertainties included in CEDC’s Form 10-K for the fiscal year ended December 31, 2008, including statements made under the captions “Item 1A. Risks Relating to Our Business” and in other documents filed by CEDC with the Securities and Exchange Commission as well as risks arising from current credit market and economic conditions globally and in the markets in which we operate.

  Contact:
  In the U.S.:
  Jim Archbold
  Investor Relations Officer
  Central European Distribution Corporation
  610-660-7817

  In Europe:
  Anna Zaluska
  Corporate PR Manager
  Central European Distribution Corporation
  48-22-456-6001

                 CENTRAL EUROPEAN DISTRIBUTION CORPORATION
             CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
         (Amount in columns expressed in thousands, except share
                          and per share information)

                                                    June 30,   December 31,
                                                        2009          2008
                                                               (as adjusted)

                      ASSETS
  Current Assets
  Cash and cash equivalents                          $225,953      $107,601
  Accounts receivable, net of allowance for doubtful
   accounts of $48,787 and $22,156 respectively       396,104       430,683
  Inventories                                         200,127       180,304
  Prepaid expenses and other current assets            76,810        22,894
  Deferred income taxes                                35,372        24,386

  Total Current Assets                                934,366       765,868

  Intangible assets, net                              703,753       570,505
  Goodwill, net                                     1,625,751       745,256
  Property, plant and equipment, net                  209,030        92,221
  Deferred income taxes                                41,362        12,886
  Equity method investment in affiliates               60,094       189,243
  Subordinated loans to affiliates                          -       107,707
  Total Non-Current Assets                          2,639,990     1,717,818

  Total Assets                                     $3,574,356    $2,483,686

       LIABILITIES AND STOCKHOLDERS' EQUITY
  Current Liabilities
  Trade accounts payable                             $180,359      $234,948
  Bank loans and overdraft facilities                  76,505       109,552
  Income taxes payable                                  1,601         7,227
  Taxes other than income taxes                       122,727       125,774
  Other accrued liabilities                           128,927        80,270
  Current portions of obligations under capital
   leases                                               1,450         2,385
  Deferred consideration                              126,975             -

  Total Current Liabilities                           638,544       560,156

  Long-term debt, less current maturities             439,923       170,510
  Long-term obligations under capital leases            1,495         2,194
  Long-term obligations under Senior Notes            645,315       633,658
  Long-term deferred consideration                    397,584             -
  Long-term accruals                                    2,902         5,806
  Deferred income taxes                               191,414       106,485

  Total Long Term Liabilities                       1,678,633       918,653

  Redeemable noncontrolling interests in
   Whitehall Group                                     27,602        33,642

  Stockholders' Equity
  Common Stock ($0.01 par value, 80,000,000 shares
   authorized, 49,467,864 and 47,344,874 shares
   issued at June 30, 2009 and December 31, 2008,
   respectively)                                          495           473
  Additional paid-in-capital                          817,521       816,490
  Retained earnings                                   312,653       186,588
  Accumulated other comprehensive income               32,915       (46,772)
  Less Treasury Stock at cost (246,037 shares at June
    30, 2009 and December 31, 2008, respectively)        (150)         (150)

  Total CEDC Stockholders' Equity                   1,163,434       956,629

  Noncontrolling interests in subsidiaries             66,143        14,606

  Total Equity                                      1,229,577       971,235

  Total Liabilities and Stockholders' Equity       $3,574,356    $2,483,686

                    CENTRAL EUROPEAN DISTRIBUTION CORPORATION
              CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
              (Amount in columns expressed in thousands, except share
                              and per share information)

         PROFIT AND LOSS
                             Three months ended     Six months ended
                             June 30,   June 30,   June 30,   June 30,
                                2009       2008       2009       2008
                                      (as adjusted)          (as adjusted)

  Sales                       $451,102   $542,845  $748,861   $950,926
  Excise taxes                 (88,997)  (121,543) (168,864)  (216,004)
  Net Sales                    362,105    421,302   579,997    734,922
  Cost of goods sold           242,409    317,564   399,139    564,968

  Gross Profit                 119,696    103,738   180,858    169,954

  Operating expenses            77,768     60,895   118,624    101,643

  Operating Income              41,928     42,843    62,234     68,311

  Non operating income /
   (expense), net
     Interest (expense), net   (22,397)   (14,487)  (34,137)   (26,272)
     Other financial income /
      (expense), net            63,288     32,000   (32,932)    41,103
     Amortization of deferred
      charges / (expense), net (11,231)         -   (11,231)         -
     Gain on revaluation of
      equity investment, net
      of impairment            206,120          -   206,120          -
     Other non operating
      income / (expense), net   (9,304)      (282)   (9,466)      (142)

  Income / (loss) before
   taxes, equity in net
   income from unconsolidated
   investments and
   noncontrolling interests
   in subsidiaries             268,404     60,074   180,588     83,000

  Income tax benefit /
   (expense)                   (52,339)   (12,451)  (34,775)   (16,759)
  Equity in net earnings of
   affiliates                      453        902   (17,968)       902

  Net income / (loss)         $216,518    $48,525  $127,845    $67,143

  Less: Net income / (loss)
   attributable to
   noncontrolling interests
   in subsidiaries               2,249      1,576     2,138      1,829
  Less: Net income / (loss)
   attributable to redeemable
   noncontrolling interests
   in Whitehall Group              543        915      (358)       915

  Net income /(loss)
   attributable to CEDC       $213,726    $46,034  $126,065    $64,399

  Net income / (loss) per
   share of common stock,
   basic                         $4.34      $1.08     $2.60      $1.55

  Net income / (loss) per
   share of common stock,
   diluted                       $4.00      $1.06     $2.39      $1.52

                  CENTRAL EUROPEAN DISTRIBUTION CORPORATION
          CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (UNAUDITED)
                 (Amount in columns expressed in thousands)

                      CASH FLOW                   Six months ended June 30,

                                                         2009       2008
                                                               (as adjusted)

  Operating Activities
  Net income                                           $127,845    $67,143
  Adjustments to reconcile net income to net cash
   provided by / (used in) operating activities:
    Depreciation and amortization                         6,422      7,331
    Deferred income taxes                               (39,655)     1,576
    Unrealized foreign exchange (gains) / losses         27,780    (39,958)
    Cost of debt extinguishment                               -      1,156
    Stock options expense                                 1,924      1,678
    Hedge revaluation                                     4,259          -
    Equity income in affiliates                          17,968       (902)
    Gain on revaluation of equity investment, net of
     impairment                                        (151,893)         -
    Other non cash items                                  3,595        (32)
    Changes in operating assets and liabilities:
      Accounts receivable                               137,291     59,431
      Inventories                                           141    (21,533)
      Prepayments and other current assets                4,407     14,211
      Trade accounts payable                            (67,598)   (11,628)
      Other accrued liabilities and payables            (14,577)   (28,319)

  Net Cash provided by Operating Activities              57,909     50,154

  Investing Activities
  Investment in fixed assets                             (8,600)    (6,172)
  Proceeds from the disposal of fixed assets              2,057      2,694
  Acquisitions of subsidiaries, net of cash acquired    140,777   (366,075)

  Net Cash used in Investing Activities                 134,234   (369,553)

  Financing Activities
  Borrowings on bank loans and overdraft facility         9,811     71,593
  Payment of bank loans and overdraft facility          (47,871)   (24,158)
  Payment of long-term borrowings                          (601)         -
  Payment of Senior Secured Notes                             -    (14,445)
  Historical Tax Payment subject to indemnification     (28,814)         -
  Hedge closure                                          (1,940)         -
  Movements in capital leases payable                    (1,245)       816
  Issuance of shares in public placement                      -    233,844
  Transactions with equity holders                       (7,876)         -
  Net Borrowings on Convertible Senior Notes                  -    304,403
  Options exercised                                         276      1,068

  Net Cash provided by Financing Activities             (78,260)   573,121

  Currency effect on brought forward cash balances        4,469     23,593
  Net Increase / (Decrease) in Cash                     118,352    277,315
  Cash and cash equivalents at beginning of period      107,601     87,867

  Cash and cash equivalents at end of period           $225,953   $365,182

                    CENTRAL EUROPEAN DISTRIBUTION CORPORATION
                   UNAUDITED RECONCILIATION OF NON-GAAP MEASURES
               (in thousands, except share and per share information)

                                 Three Months Ended   Six Months Ended
                                       June 30,           June 30,
                                     2009     2008      2009     2008

  GAAP net income/(loss)         $213,726  $46,034  $126,065  $64,399

  A. Foreign exchange impact
   related to USD and EUR
   denominated  financing         (41,939) (25,145)   54,947  (32,366)  (A)
  B. Gain on revaluation of equity
   stake in RAG, net of goodwill
   and brand impairment charges  (162,784)       -  (162,784)       -   (B)
  C. Adjustment to reflect RAG
   acquistion at 42% ownership      1,408        -     1,408        -  ( C )
  D. Other acquisition related
      Costs                         7,030      390     7,030      659   (D)
  E. Cost associated with early
   retirement of debt                   -        -         -      548   (E)
  F. Impact of adoption of ABP14      640        -     1,267      167   (F)
  G. Other non-recurring costs        483    1,461       483    1,461   (G)

  Comparable non-GAAP net income  $18,564  $22,740   $28,416  $34,868

  Comparable net income per share
   of common stock, basic            0.38     0.54      0.58     0.84
  Comparable net income per share
   of common stock, diluted          0.38     0.52      0.58     0.82   (H)

(A) Represents the net after tax impact of the foreign currency revaluation related to our USD and EUR financing (debt as well as the convertible note which was purchased from RAG during the 2nd quarter 2009) as a majority of these borrowings have been lent down to entities that have the Polish Zloty or Russian Ruble as their functional currency. Also included is the proportional net after tax impact of the foreign currency revaluation related to the foreign currency liabilities included in the earnings of our equity method investments ( Russian Alcohol Group and the MHWH JV) as these entities have the Russian Ruble as their functional currency. The amount has been adjusted to reflect only the CEDC portion of foreign exchange gains or losses of the Russian Alcohol Group and does not include the portion attributable to the minority shareholders.

(B) As a result of the change in accounting treatment of the investment in the Russian Alcohol Group during the second quarter of 2009 from equity accounting to consolidation, CEDC was required to revalue the equity investment to market value at the time of conversion. This amount was then netted with an impairment charge for RAG goodwill.

( C ) The Company has recorded deferred payments to Lion in connection with the RAG acquisition on the balance sheet at fair value and amortizes this discount as a non cash amortization expense over the payment period and records its investment in RAG as if it owned Lions shares. This adjustment eliminates the non-cash amortization and increases the minority interest for the net profit attributable to the shares held by Lion Capital to reflect CEDC results as if it owned 52% of RAG without amortization of the deferred payments to Lion.

(D) Represents other miscellaneous costs, directly related to acquisition costs related of the Parliament acquisition in 2008 and RAG in 2009.

(E) Represents the net after tax impact associated with the retirement of $14 million of the Senior Secured Notes in 2008.

(F) In May 2008, the FASB issued FSP APB 14-1, which impacts the accounting treatment for convertible debt instruments that allow for either mandatory or optional cash settlements. FSP APB 14-1 will impact the accounting associated with our $310.0 million senior convertible notes. This FSP requires us to recognize additional non-cash interest expense on a retrospective basis, based on the market rate for similar debt instruments without the conversion feature. Furthermore, it requires recognizing interest expense in prior periods pursuant to the retrospective accounting treatment. FSP APB 14-1 has become effective beginning in our first quarter of 2009 and is required to be applied retrospectively to all presented periods, as applicable.

(G) On June 30, 2008, CEDC terminated operations of the German import business acquired as part of the Parliament acquisition and in July 2008, moved all German import operations to a 3rd party importer. The $1,461 million represents the net loss incurred by the discontinued operation for the 3 months ended June 30, 2008. For 2009 the amount represents one off tax charges related to a tax inspection for the period prior to the investment in 2008.

(H) Fully diluted EPS on a comparable basis includes share count of 49.4 million weighted average number of shares outstanding for the quarter ended June 30, 2009, excluding the impact of 4 million shares to be issued to Lion Capital in the future in connection with CEDC’s acquisition of Lion Capital’s remaining interest in RAG. These 4 million shares had not been issued yet, and this treatment is consistent with the increase of minority impact referred to in item C above.

Source: Central European Distribution Corporation

CONTACT: In the U.S., Jim Archbold, Investor Relations Officer,
+1-610-660-7817, or In Europe, Anna Zaluska, Corporate PR Manager,
+48-22-456-6001, both of Central European Distribution Corporation

Web Site: http://www.cedc.com.pl/

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