This excerpt taken from the CEDC 8-K filed Oct 17, 2005.
You should carefully consider the risks described below before making an investment decision to purchase shares of our common stock. Any of the following risks could adversely affect our business, financial condition or results of operations, some of which materially. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition or results of operations.
This excerpt taken from the CEDC 8-K filed Jul 5, 2005.
An investment in the Notes to be issued in this offering includes a high degree of risk. You should carefully consider the risks described below as well as the other information contained in this offering memorandum before making an investment decision. Any of the following risks could materially adversely affect our business, financial condition or results of operations. If that were to happen, we may not be able to pay interest or principal on the Notes when due and you could lose all or part of your original investment.
The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations.
This excerpt taken from the CEDC 10-K filed Mar 15, 2005.
The inability to adequately manage exchange-rate risk could affect our financial results and our ability to make financial projections.
Our operations are conducted primarily in Poland. Our functional currency is the Polish zloty while our reporting currency is the U.S. dollar. Our financial instruments consist mainly of cash and cash equivalents, accounts payable and receivable, inventories, bank loans, overdraft facilities and long-term debt. Most of the monetary assets represented by these financial instruments are located in Poland. Consequently, they are subject to currency translation risk when reporting in U.S. dollars.
If the U.S. dollar increases in value against the Polish zloty, the value in U.S. dollars of assets, liabilities, revenues and expenses originally recorded in the Polish zloty will decrease. Conversely, if the U.S. dollar decreases in value against the Polish zloty, the value in U.S. dollars of assets, liabilities, revenues and expenses originally recorded in Polish zloty will increase. Thus, increases and decreases in the value of the U.S. dollar can have an impact on the value in U.S. dollars of our non-U.S. dollar assets, liabilities, revenues and expenses, even if the value of these items has not changed in their original currency.
The following table sets forth, for the periods indicated, the average exchange rate (expressed in current zloty) quoted by the National Bank of Poland. Such rates are set forth as zloty per U.S. dollar. At March 9, 2005, the rate was PLN 2.91.
The inability to maintain and expand our senior management would threaten our ability to implement all of our business strategies.
The management of future growth will require the ability to retain qualified management personnel and to attract and train new personnel. Senior leadership is necessary to develop the financial and cost controls, information systems and marketing activities needed for us to prosper. Further, the successful integration of acquired companies requires substantial attention from our senior management team. Failure to successfully retain and hire needed personnel to manage our growth and development would have a material adverse effect on our ability to implement our business plan and grow our business.
A significant number of our largely short-term and non-exclusive supply contracts may be unexpectedly terminated, which would materially and adversely affect our ability to generate revenue and operating profits.
We distribute approximately 93% of the alcoholic beverages in our portfolio on a non-exclusive basis. Furthermore, most of our distribution agreements for these beverages have a term of approximately one year, although several of such agreements can be terminated by either party without cause on relatively short notice.
For example, the distribution agreements with respect to domestic vodka (which accounted for approximately 75% of our net sales in 2004) can be terminated on one month notice. Any termination of a significant number of our supply contracts would adversely affect our ability to generate revenue and operating profits.
In 2004, we purchased over 5% of net sales from the following suppliers: Polmos Bialystok (19%), Sobieski Distribution (13%), Unicom Bols Group (10%) and Polmos Zielona Gora (7%). We have one-year supply contracts with each of these companies. The termination of our relationship with any of these entities could have a material adverse effect on our revenue and operating profits.
Market consolidation could lead to margin pressure.
There were approximately 1,000 alcohol distributors in Poland in 1995. In 2004, approximately 200 were actively conducting business in the marketplace. We expect this number to decrease and stabilize to approximately 50 alcohol distributors that would control approximately 90% of the market. During this period of consolidation, we expect the weaker distributors to maintain low prices in an effort to stay solvent and viable, which could put downward pressure on our existing gross margins as we continue to gain market share. As a result, we will continue to monitor these potential events and will attempt to balance maintaining gross margins and sales to be in line with our strategic objectives during this transitional period.