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 and/or Russian 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 Current Report on Form 8-K filed with the SEC on July 13, 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.

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 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 2009, we have sustained 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 September 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 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, which has resulted in the consolidation of the Russian Alcohol Group commencing in the second quarter of 2009.

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. As a result of this the economic interest of the Company in Whitehall Group increased from 75% to 80%.

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 Hennessy. 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 Hennessy 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.

As a result of these agreements, the Company has assessed RAG as a variable interest entity, with the Company being the primary beneficiary. Pursuant to this change, the Company has begun to consolidate RAG as of the second quarter of 2009 and recorded a non-controlling interest of 9.4% representing equity not held by the Company or Lion Capital. From an accounting perspective the Company treated the acquisition of the RAG equity interests held by Lion as if this acquisition had happened on April 24, 2009. As of this date CEDC recorded at fair value all future payments due under these agreements as a liability. The total present value of deferred consideration as of April 24, 2009 amounted to $447.2 million and was determined using a 14.5% discount rate. The present value of the liability is amortized over the period of time ending on the date the last payment is made which is currently expected in 2013, with recognition of a non cash interest expense every quarter in the statement of income. The discount amortization charge for the period from April 24, 2009 to September 30, 2009 amounted to $27.4 million.

On July 29, 2009, the Company entered into an agreement with Lion, pursuant to which Lion/Rally Cayman 7 L.P., a Cayman Exempted Limited Partnership, of which the Company holds 100% of the economic interests and is a limited partner, acquired an additional 6% indirect equity interest in RAG from certain minority investors in RAG in exchange for $30,000,000 in cash funded by the Company. After giving effect to this acquisition, the Company holds approximately 58% of the equity interests in RAG.

Starting from the second quarter of 2009, the Company is consolidating all profit and loss results for Cayman 2 except for the share not held by the Company or Lion Capital, which was initially 9.4% but decreased to 3.4% as a result of the acquisition of a 6% interest from certain minority investors described in the paragraph above. The Company accounts for the 3.4% of non-controlling interest being presented under the equity section in the consolidated balance sheet of CEDC.

The impact of the consolidation of the Russian Alcohol Group includes the consolidation of the revenues and costs of the business which impact sales, gross margins, operating costs, operating profit and financial expenses as discussed in more detail below. In addition the amortization of the deferred acquisition charges is reflected in other non-operating expenses and the net income attributable to non-controlling interest in subsidiaries reflects the proportionate share of net income net held by either the Company or Lion Capital, which is 3.4% at present.

Effect of Exchange Rate Movements

During the first quarter of 2009 there was a significant depreciation of the Polish Zloty and the Russian Ruble against the U. S. Dollar and the Euro; however, during the second and third quarter the situation in emerging markets began to improve and both currencies began to strengthen against the U.S. Dollar. These exchange rate movements have had a material impact on our foreign currency translation in each reporting quarter. In addition, we recognized a material non cash foreign exchange translation loss in the first quarter, and a material non cash foreign exchange translation gain in the second and third quarter, in each case primarily due to our liabilities under the Senior Secured Notes and the Senior Convertible Notes, denominated in Euro and U.S. Dollars, respectively.

Basis of presentation

We adopted ASC Topic 470-20, "Debt with Conversion and Other Options" that is effective for our $310.0 million aggregate principal amount of 3.00% Convertible Senior Notes ("CSN") and requires retrospective application for all periods presented. The ASC Topic 470-20 requires the issuer of convertible debt instruments with cash settlement features to separately account for the liability ($290.3 million as of the date of the issuance of the CSNs) and equity components ($19.7 million as of the date of the issuance of the CSNs) of the instrument. The debt component was recognized at the present value of its cash flows discounted using a 4.5% discount rate, our borrowing rate at the date of the issuance of the CSNs for a similar debt instrument without the conversion feature. The equity component, recorded as additional paid-in capital, was $12.8 million, which represents the difference between the proceeds from the issuance of the CSNs and the fair value of the liability, net of deferred taxes of $6.9 million as of the date of the issuance of the CSNs.

ASC Topic 470-20 also requires an accretion of the resultant debt discount over the expected life of the CSNs, which is March 7, 2008 to March 15, 2013. The condensed consolidated income statements were retroactively modified compared to previously reported amounts as follows (in thousands, except per share amounts):

                                             Nine months ended                 Three months ended
                                             September 30, 2008                September 30, 2008

Additional pre-tax non-cash
interest expense                                           3,580                             2,133
Additional deferred tax benefit                            1,253                               747
Retroactive change in net income
and retained earnings                                     (2,327 )                          (1,386 )
Change to basic earnings per
share                                       ($              0.05 )            ($              0.03 )
Change to diluted earnings per
share                                       ($              0.05 )            ($              0.03 )

Results of Operations:

Three months ended September 30, 2009 compared to three months ended September 30, 2008

A summary of the Company's operating performance (expressed in thousands except per share amounts) is presented below. The amounts for the three months ended September 30, 2008 have been adjusted from the previously disclosed amounts, as described above.

                                                               Three months ended
                                                                             September 30,
                                                       September 30,             2008
                                                           2009              (as adjusted)

Sales                                                 $       577,287       $       586,038
Excise taxes                                                 (187,188 )            (133,597 )
Net Sales                                                     390,099               452,441
Cost of goods sold                                            260,269               336,609


Gross Profit                                                  129,830               115,832


Operating expenses                                             80,040                62,992


Operating Income before fair value adjustments                 49,790                52,840


Contingent consideration true-up                              (15,000 )                  -
Gain on remeasurement of previously held equity
interest                                                           -                     -
Impairment charge                                                  -                     -

Operating Income                                               34,790                52,840


Non operating income / (expense), net
Interest (expense), net                                       (17,379 )             (16,550 )
Other financial income / (expense), net                        58,112               (34,730 )
Amortization of deferred charges                              (16,192 )                  -
Other non operating (expense), net                               (319 )                (423 )


Income before taxes, equity in net income from
unconsolidated investments and noncontrolling
interests in subsidiaries                                      59,012                 1,137

Income tax benefit / (expense)                                (11,584 )                  68
Equity in net earnings of affiliates                              956                 1,087

Net income                                            $        48,384       $         2,292


Less: Net income attributable to noncontrolling
interests in subsidiaries                                          47                   657
Less: Net income attributable to redeemable
noncontrolling interests in Whitehall Group                     1,191                 2,361


Net income /(loss) attributable to CEDC               $        47,146       ($          726 )


Net income / (loss) per share of common stock,
basic                                                 $          0.85       ($         0.02 )


Net income / (loss) per share of common stock,
diluted                                               $          0.80       ($         0.02 )

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 13.8%, or $62.3 million, from $452.4 million for the three
months ended September 30, 2008 to $390.1 million for the three months ended
September 30, 2009. This decrease in sales is due to the following factors:



        Net Sales for three months ended September 30, 2008   $  452,441
        Increase from acquisitions                                97,406
        Reduction of low margin products and excise impact       (23,534 )
        Existing business sales decline                          (20,795 )
        Impact of foreign exchange rates                        (115,419 )

        Net sales for three months ended September 30, 2009   $  390,099

Factors impacting our existing business sales for the three months ending September 30, 2009 include our program of reducing our wholesaling of lower margin SKUs, primarily beer (which sells in higher volumes during the summer as compared to other quarters), in Poland that we began at the end of 2008, which amounts to $23.5 million, including $1.6 million of excise tax reduction, for the three months ended September 30, 2009. As of January 2009, sales of products which we produce at Polmos Bialystok and Bols to certain key accounts were moved from our distribution companies to the producer, Polmos Bialystok and Bols, in order to reduce distribution costs. When a sale is reported directly from a producer, excise tax is eliminated from net sales and when a sale is made from a distribution company the sales are recorded gross with excise tax. Therefore the movement of the sales contracts from a distributor to the producer reduces the amount of net sales reported through the elimination of excise tax and also increases gross profit as a percent of sales. Our existing business sales growth was slightly lower in Poland and Russia, reflecting the soft consumer environment due to the global and regional economic crisis. The net sales increase from acquisitions is due to the inclusion of sales from the Russian Alcohol Group, which the Company has begun consolidating as of the second quarter of 2009.

Based upon average exchange rates for the three months ended September 30, 2009 and September 30, 2008, our functional currencies depreciated against the U.S. dollar, by approximately 26%. This resulted in a decrease of $115.4 million of sales in U.S. Dollar terms. Our business split by segment, which represents our primary geographic locations of operations, Poland, Russia and Hungary, is shown below:

                                           Segment Net Sales
                                           Three months ended
                                             September 30,
                                            2009        2008
                       Segment
                       Poland            $  232,558   $ 356,065
                       Russia               149,180      84,948
                       Hungary                8,361      11,428


                       Total Net Sales   $  390,099   $ 452,441

As noted above the decline in sales for Poland was primarily driven by the devaluation of the Polish Zloty against the U.S. dollar and the reduction in our lower margin third party distribution sales. Partially offsetting these items was growth in our imports and exports business.

The increase in sales in Russia was driven primarily by the consolidation of the sales of the Russian Alcohol Group, as discussed above.

The Hungarian sales decline was driven mainly by the devaluation of the Hungarian Forint to the U.S. dollar, as well as the soft consumer environment due to the global and regional economic crisis.

Gross Profit

Total gross profit increased by approximately 12.1%, or $14.0 million, to $129.8 million for the three months ended September 30, 2009, from $115.8 million for the three months ended September 30, 2008, reflecting the increase in gross profit margins percentage in the three months ended September 30, 2009. Gross margin increased from 25.6% of net sales for the three months ended September 30, 2008 to 33.3% of net sales for the three months ended September 30, 2009. The primary factor resulting

in the improved margin was the inclusion of the results of the Russian Alcohol Group, which, as producer, operates on a higher gross profit margin than the Polish distribution 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, as well as lower input costs, including raw spirit, and a growth of our import/export business.

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 13.9% for the three months ended September 30, 2008 to 20.5% for the three months ended September 30, 2009. Total operating expenses increased by approximately 27.0%, or $17.0 million, from $63.0 million for the three months ended September 30, 2008 to $80.0 million for the three months ended September 30, 2009. Approximately $33.8 million of this increase resulted primarily from the effects of the consolidation of the Russian Alcohol Group. The cost base of our business was reduced by $0.7 million due to various cost cutting measures taken over in the last nine months.

    Operating expenses for three months ended September 30, 2008   $  62,992
    Increase from acquisitions                                        33,784
    Decrease from existing business decline                             (667 )
    Impact of foreign exchange rates                                 (16,069 )

    Operating expenses for three months ended September 30, 2009   $  80,040

The table below sets forth the items of operating expenses.

                                                  Three Months Ended
                                                    September 30,
                                                   2009         2008
                                                   ($ in thousands)
                S,G&A                           $    66,134   $ 48,927
                Marketing                            10,985     10,732
                Depreciation and amortization         2,921      3,333

                Total operating expense         $    80,040   $ 62,992

S,G&A consists of salaries, warehousing and transportation costs, administrative expenses and bad debt expense. S,G&A increased by approximately 35.2%, or $17.2 million, from $48.9 million for the three months ended September 30, 2008 to $66.1 million for the three months ended September 30, 2009. Approximately $29.3 million of this increase resulted from the consolidation of the results of the Russian Alcohol Group partially offset by the devaluation of the Polish Zloty and cost savings.

Depreciation and amortization decreased by approximately 12.1%, or $ 0.4 million, from $3.3 million for the three months ended September 30, 2008 to $2.9 million for the three months ended September 30, 2009 due to the impact of foreign exchange translation.

Operating Income

Total operating income decreased by approximately 34.1%, or $18.0 million, from $52.8 million for the three months ended September 30, 2008 to $34.8 million for the three months ended September 30, 2009. This decrease resulted primarily from a $15.0 million post-closing cash payment made to the original sellers for the Russian Alcohol Group that was settled in the third quarter of 2009, as well as devaluation of the Polish Zloty against the U.S. Dollar. Because the $15.0 million payment was made after the acquisition closing date, the consideration is treated as an expense on the income statement. In addition, excluding the $15.0 million payment described above, operating profit margin as a percentage of net sales increased from 11.7% to 12.8% reflecting the impact of our own brands constituting a greater proportion of our total sales, including in Russia, as well as the reduction in lower third party distribution sales and cost cutting measures as mentioned above. The table below summarizes the segmental split of operating profit.

                                                Operating Income
                                               Three months ended
                                                  September 30,
                                               2009           2008
. . .