Amounts in tables expressed in thousands, except per share information

Not Orderly," provides guidelines for making fair value measurements more consistent with the principles presented in SFAS No. 157, "Fair Value Measurements." FSP SFAS No. 107-1 and APB No. 28-1, "Interim Disclosures about Fair Value of Financial Instruments," enhances consistency in financial reporting by increasing the frequency of fair value disclosures. FSP SFAS No. 115-2 and SFAS No. 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments," provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. These FSPs are effective for us for reporting periods ending after June 30, 2009. We are continuing to assess the potential disclosure effects of these pronouncements.

In December 2008, the FASB issued FSP SFAS No. 132R-1, "Employers' Disclosures about Postretirement Benefit Plan Assets" ("FSP SFAS 132R-1") which significantly expands the disclosures required by employers for postretirement plan assets. The FSP requires plan sponsors to provide extensive new disclosures about assets in defined benefit postretirement benefit plans as well as any concentrations of associated risks. In addition, the FSP requires new disclosures similar to those in SFAS No. 157, "Fair Value Measurements", in terms of the three-level fair value hierarchy. The disclosure requirements are annual and do not apply to interim financial statements and are required by us in disclosures related to the year ended December 31, 2009. We do expect the adoption of FSP SFAS 132R-1 to result in additional annual financial reporting disclosures and we are continuing to assess the potential effects of this pronouncement.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following analysis should be read in conjunction with the Consolidated Financial Statements and the notes thereto appearing elsewhere in this report.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information.

This report contains forward-looking statements, which provide our current expectations or forecasts of future events. These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "anticipates," "expects," "intends," "may," "will" or "should" or, in each case, their negative, or other variations or comparable terminology, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include, without limitation:

• information concerning possible or assumed future results of operations, trends in financial results and business plans, including those relating to earnings growth and revenue growth, liquidity, prospects, strategies and the industry in which the Company and its subsidiaries operate;

• statements about the level of our costs and operating expenses relative to the Company revenues, and about the expected composition of the Company's revenues;

• statements about consummation, financing, results and integration of the Company's acquisitions, including future acquisitions the Company may make;

• information about the impact of Polish regulations on the Company business;

• statements about local and global credit markets, currency exchange rates and economic conditions;

• other statements about the Company's plans, objectives, expectations and intentions; and

• other statements that are not historical facts.

By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, the development of the industry in which we operate, and the effects of acquisitions on us may differ materially from those anticipated in or suggested by the forward-looking statements contained in this report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.

We urge you to read and carefully consider the items of the other reports that we have filed with or furnished to the SEC for a more complete discussion of the factors and risks that could affect us and our future performance and the industry in which we operate, including the risk factors described in the Company's Annual Report on Form 10-K for the year ended, December 31, 2008 filed with the SEC on March 2, 2009. In light of these risks, uncertainties and assumptions, the forward-looking events described in this report may not occur as described, or at all.

You should not unduly rely on these forward-looking statements, because they reflect our judgment only as of the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement to reflect circumstances or events after the date of this report, or to reflect on the occurrence of unanticipated events. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this report.

Amounts in tables expressed in thousands, except per share information

The following discussion and analysis provides information which management believes is relevant to the reader's assessment and understanding of the Company's results of operations and financial condition and should be read in conjunction with the Consolidated Financial Statements and the notes thereto found elsewhere in this report.

Overview

We are the largest vodka producer by value and volume in Poland, and one of the largest producers of vodka in the world with our primary operations in Poland, Hungary and Russia. In Poland, we produce the Absolwent, Zubrówka, Bols and Soplica brands, among others. In Russia, we produce and sell one of the leading vodkas in the premium segment, Parliament Vodka. Through our investment in the Russian Alcohol Group, referred to as RAG, we also produce and sell the number one selling vodka in Russia, Green Mark, a mainstream brand. In addition, we produce and distribute Royal Vodka, the number one selling vodka in Hungary. We also currently export our products to many markets around the world.

In 2008, the companies in our group produced and sold approximately 30.1 million nine-liter cases of vodka in the four main vodka segments: top-premium, premium, mainstream and economy (with over 85% of our sales in the mainstream and premium segments).

Starting at the end of 2008 and continuing into the first quarter of 2009, we have continued our actions focused on cost control and working capital management, including re-evaluating our capital expenditure plans, continuing to consolidate distribution branches in Poland and reducing headcount both in Poland and Russia. In addition in Russia and Poland, spirit pricing has remained low from year end to March 2009, and labor costs continue to come down as well as other key cost components including but not limited to petrol costs and materials for packaging.

Significant factors affecting our consolidated results of operations

Effect of Acquisitions of Production Subsidiaries

During 2009, we have continued our acquisition strategy outside of Poland and Hungary with our investments into the production and importation of alcoholic beverages in Russia. Specifically, the Company agreed to amend the terms of the Stock Purchase Agreement governing its acquisition of equity interests in Whitehall to satisfy the Company's obligation to the seller pursuant to a share price guarantee in the original Stock Purchase Agreement. In addition, the Company and Lion Capital LLP have entered into a new agreement to govern the Company's acquisition of all of the equity interests in the Russian Alcohol Group held by Lion.

The Whitehall Acquisition

On May 23, 2008, the Company and certain of its affiliates entered into, and closed upon, a Share Sale and Purchase Agreement and certain other agreements whereby the Company acquired shares representing 50% minus one vote of the voting power, and 75% of the economic interests in the Whitehall Group. The Whitehall Group is a leading importer of premium spirits and wines in Russia. The aggregate consideration paid by the Company was $200 million, paid in cash at the closing. In addition, on October 21, 2008 the Company issued 843,524 shares of its common stock to the seller. On February 24, 2009, the Company and the seller amended the terms of the Stock Purchase Agreement governing the Whitehall acquisition to satisfy the Company's obligations to the seller pursuant to a share price guarantee in the original Stock Purchase Agreement, as described under "The Company's Future Liquidity and Capital Resources," below.

The Company has consolidated the Whitehall Group as a business combination as of May 23, 2008, on the basis that the Whitehall Group is a Variable Interest Entity and the Company has been assessed as being the primary beneficiary. Included within the Whitehall Group is a 50/50 joint venture with Möet Henessy. This joint venture is accounted for using the equity method and is recorded on the face of the balance sheet in investments with minority interest initially recorded at fair value on the face of the balance sheet. The current term of the joint venture is until June 2013 at which point the Möet Henessy will have the option to acquire the remaining shares of the entity.

The Investment in the Russian Alcohol Group

On July 9, 2008, the Company completed an investment with Lion Capital LLP and certain of Lion's affiliates and certain other investors, pursuant to which the Company, Lion and such other investors acquired all of the outstanding equity of the Russian Alcohol Group ("RAG"). In connection with that investment, the Company acquired an indirect equity stake in RAG of approximately 42%, and Lion acquired substantially all of the remainder of the equity of RAG. The agreements governing that investment gave the Company the right to acquire, and gave Lion the right to require the Company to acquire, Lion's equity stake in RAG (the "Prior Agreement"). On April 24, 2009, the Company entered into new agreements with Lion to replace the Prior Agreement, which will permit the Company, through a multi-stage equity purchase, to acquire over the next five years (including 2009) all of the equity interests in RAG held by Lion, as described under "The Company's Future Liquidity and Capital Resources," below.

Amounts in tables expressed in thousands, except per share information

Effect of Exchange Rate Movements

The first quarter of fiscal year 2009 also saw the continuation of significant changes in the global economic environment, which commenced in 2008 and continue to this day as the world-wide financial crisis began to affect Central and Eastern Europe. During the first quarter of 2009 there has been a significant depreciation of the Polish zloty and the Russian ruble against the U. S. dollar and the Euro which has had a material impact on our foreign currency translation. In addition, we recognized a material non cash foreign exchange translation loss primarily due to our liabilities under the Senior Secured Notes and the Senior Convertible Notes, denominated in Euro and U.S. Dollars, respectively.

Results of Operations:

Three months ended March 31, 2009 compared to three months ended March 31, 2008

A summary of the Company's operating performance (expressed in thousands except
per share amounts) is presented below.



                                                                  Three months ended
                                                                              March 31,
                                                            March 31,           2008
                                                               2009         (as adjusted)
                     PROFIT AND LOSS
Sales                                                       $  297,759     $       408,080
Excise taxes                                                   (79,867 )           (94,460 )
Net Sales                                                      217,892             313,620
Cost of goods sold                                             156,730             247,404


Gross Profit                                                    61,162              66,216


Operating expenses                                              40,856              40,748


Operating Income                                                20,306              25,468


Non operating income / (expense), net
Interest (expense), net                                        (11,740 )           (11,785 )
Other financial income / (expense), net                        (96,220 )             9,103
Other non operating income / (expense), net                       (162 )               140


Income / (loss) before taxes, equity in net income from
unconsolidated investments and noncontrolling interests
in subsidiaries                                                (87,816 )            22,926

Income tax benefit / (expense)                                  17,564              (4,308 )
Equity in net earnings of affiliates                           (18,421 )                -

Net income / (loss)                                         $  (88,673 )   $        18,618


Less: Net income / (loss) attributable to noncontrolling
interests in subsidiaries                                         (111 )               253
Less: Net income / (loss) attributable to redeemable
noncontrolling interests in Whitehall Group                       (901 )                -


Net income /(loss) attributable to CEDC                     $  (87,661 )   $        18,365


Net income / (loss) per share of common stock, basic        $    (1.83 )   $          0.45


Net income / (loss) per share of common stock, diluted      $    (1.83 )   $          0.44

Amounts in tables expressed in thousands, except per share information

Net Sales

Net sales represent total sales net of all customer rebates, excise tax on
production and exclusive imports and value added tax. Total net sales decreased
by approximately 30.5%, or $95.7 million, from $313.6 million for the three
months ended March 31, 2008 to $217.9 million for the three months ended
March 31, 2009. This decrease in sales is due to the following factors:



           Net Sales for three months ended March 31, 2008   $ 313,620
           Increase from acquisitions                           35,508
           Reduction of low margin products                    (17,384 )
           Existing business sales decline                     (14,767 )
           Impact of foreign exchange rates                    (99.085 )

           Net sales for three months ended March 31, 2009   $ 217,892

Factors impacting our existing business sales for the three months ending March 31, 2009 include our program of reducing our wholesaling of lower margin SKUs, primarily beer, in Poland, which we began at the end of 2008 and lower depletions during the first quarter of 2009 as a result of higher inventory levels in the market in Poland at the beginning of the quarter. These higher inventory levels in the market at the beginning of the quarter were driven by the nine percent excise tax increase in Poland on December 31, 2008 which prompted customers to purchase additional product prior to December 31, 2008 at the lower excise tax. This was the primary factor affecting our decline in existing business sales growth. However, as noted below, the reduction in lower margin of distributed products contributed to our positive growth in gross and operating margins as a percentage of sales. Finally the timing of Easter impacted our sales trend as Easter which is traditionally a higher sales period fell during the first quarter in 2008 whereas in 2009, this took place in the second quarter.

Based upon average exchange rates for the three months ended March 31, 2009 and March 31, 2008, our functional currencies depreciated against the U.S. dollar, by approximately 33%. This resulted in a decrease of $99.1 million of sales in U.S. Dollar terms. As a result of our recent acquisitions in Russia, we have moved to a segmental approach to our business split by our primary geographic locations of operations, Poland, Russia and Hungary.

                                          Segment Net Revenues
                                           Three months ended
                                               March 31,
                                            2009         2008
                      Segment
                      Poland            $    167,413   $ 297,389
                      Russia                  43,384       7,225
                      Hungary                  7,095       9,006

                      Total Net Sales   $    217,892   $ 313,620

As noted above the decline in sales for Poland were primarily driven by the devaluation of the Polish Zloty against the U.S. dollar, the reduction in our lower margin third party distribution sales, the lower sell out of our own products due to higher inventory levels in the market as a result of the excise tax increase in Poland on December 31, 2008, and the timing of Easter. Partially offsetting these items was growth in our imports and exports business. The reduction in lower margin distribution sales is expected to continue throughout the year, impacting sales by approximately $10 to $15 million per quarter, however having a positive impact on a gross margin as a percentage of sales.

The increase in sales in Russia was driven primarily by the inclusion of a full quarter for the entities acquired in 2008, namely Parliament on March 13, 2008 and the Whitehall Group on May 23, 2008.

The Hungarian sales decline was driven by the devaluation of the Hungarian Forint to the U.S. dollar, whereas in local currency value terms sales were up by two percent.

Gross Profit

Total gross profit decreased by approximately 7.6%, or $5.0 million, to $61.2 million for the three months ended March 31, 2009, from $66.2 million for the three months ended March 31, 2008, reflecting a sales decline for the factors noted above in the three months ended March 31, 2009. However, gross margin increased from 21.1% of net sales for the three months ended March 31, 2008 to 28.1% of net sales for the three months ended March 31, 2009. The primary factor resulting in the improved margin was the

Amounts in tables expressed in thousands, except per share information

inclusion of the newly acquired businesses in Russia, Parliament and Whitehall, which, as producers and importers, operate on a higher gross profit margin than the Polish business, which is more significantly impacted by lower margin distribution operations. Margins were further improved by our reduced emphasis on lower margin third party distribution products, primarily beer, as described above.

Operating Expenses

Operating expenses consist of selling, general and administrative, or "S,G&A" expenses, advertising expenses, non-production depreciation and amortization, and provision for bad debts. Operating expenses as a percent of net sales increased from 13.0% for the three months ended March 31, 2008 to 18.8% for the three months ended March 31, 2009. Total operating expenses increased by approximately 0.4%, or $0.2 million, from $40.7 million for the three months ended March 31, 2008 to $40.9 million for the three months ended March 31, 2009. Approximately $10.3 million of this increase resulted primarily from the effects of the acquisition of Parliament Group in March 2008 and Whitehall Group in May 2008. Approximately $2.9 million resulted from the cost increases in our existing business, which includes costs related to employee headcount reductions that were implemented during the first quarter of 2009. These increases were fully offset by the depreciation of the functional currencies against U.S. Dollar.

       Operating expenses for three months ended March 31, 2008   $  40,748
       Increase from acquisitions                                    10,339
       Increase from existing business growth                         2,870
       Impact of foreign exchange rates                             (13,101 )

       Operating expenses for three months ended March 31, 2009   $  40,856

The table below sets forth the items of operating expenses.

                                                  Three Months Ended
                                                      March 31,
                                                   2009         2008
                                                   ($ in thousands)
                S,G&A                           $    33,149   $ 32,808
                Marketing                             5,683      5,822
                Depreciation and amortization         2,024      2,118

                Total operating expense         $    40,856   $ 40,748

S,G&A consists of salaries, warehousing and transportation costs, administrative expenses and bad debt expense. S,G&A increased by approximately 0.9%, or $0.3 million, from $32.8 million for the three months ended March 31, 2008 to $33.1 million for the three months ended March 31, 2009. Approximately $10.0 million of this increase resulted primarily from the effects of the acquisitions discussed above and the remainder of the increase resulted primarily from the growth of the business, which increases were fully offset by the depreciation of the Polish Zloty against the U.S. Dollar. As a percent of sales, S,G&A has increased from 10.5% of net sales for the three months ended March 31, 2008 to 15.2% of net sales for the three months ended March 31, 2009.

Depreciation and amortization decreased by approximately 4.8%, or $ 0.1 million, from $2.1 million for the three months ended March 31, 2008 to $2.0 million for the three months ended March 31, 2009 due to the impact of foreign exchange translation.

Operating Income

Total operating income decreased by approximately 20.4%, or $5.2 million, from $25.5 million for the three months ended March 31, 2008 to $20.3 million for the three months ended March 31, 2009. This decrease resulted primarily from the impact of the devaluation of our primary functional currencies (Polish Zloty, Russian Ruble and Hungarian Forint) against the U.S. Dollar, as described above. However, as a percent of net sales, operating profit margin increased from 8.1% to 9.3% reflecting the impact of the newly acquired Russian business, as well as the reduction in lower third party distribution sales. The table below summarizes the segmental split of operating profit.

                                                 Operating Profit
                                                Three months ended
                                                     March 31,
                                                 2009          2008
                 Segment
                 Poland                       $   14,903     $ 23,577
                 Russia                            6,259        1,657
                 Hungary                             607        1,404
                 Corporate Overhead
                 General corporate overhead         (499 )       (404 )
                 Option Expense                     (964 )       (766 )

                 Total Operating Profit       $   20,306     $ 25,468

Amounts in tables expressed in thousands, except per share information

Operating profit in Poland as a percent of net sales increased to 8.9% for the three months ended March 31, 2009 from 7.9% in the same period in 2008. The was due to the factors mentioned above, namely the trimming of lower margin distribution products from our sales mix.

The operating profit margin as a percent of net sales in Russia declined from 23% for the three months ended March 31, 2008 to 14% for the three months ended March 31, 2009. However due to the timing of the acquisitions in Russia, the first quarter of 2008 only includes two weeks of operations from Parliament which is not reflective of a normal first quarter in Russia. In addition, the seasonality of the business in Russia is much greater than in Poland, as generally the first quarter operating profit is approximately 5%-8% of the full year operating profit in Russia, as compared to 15%-16% in Poland. This is due to the timing of holidays in Russia, which results in significantly lower sales during January. Therefore the first quarter in Russia tends to have a significantly lower operating profit as a percent of sales as compared to the rest of the year.

In Hungary there was a decline in operating profit as a percent of net sales from 15.6% for the three months ended March 31, 2008 to 8.6% for the three months ended March 31, 2009. This decline was due primarily to higher local currency import costs as the Hungarian business sales constitute only imported spirits which have prices denominated primarily in Euro. However, we expect a price increase, which was taken at the end of the first quarter of 2009, together with the recent strengthening of the Hungarian Forint, to mitigate the impact of higher local currency import prices. . . .