REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the Shareholders of Central European Media Enterprises Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Central European Media Enterprises Ltd. (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income / loss, equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 6, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
London, United Kingdom
February 6, 2020
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED BALANCE SHEETS
(US$ 000’s, except share and per share data)
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
36,621
|
|
|
$
|
62,031
|
|
Accounts receivable, net (Note 6)
|
188,618
|
|
|
193,371
|
|
Program rights, net (Note 5)
|
75,909
|
|
|
77,624
|
|
Other current assets (Note 7)
|
48,832
|
|
|
41,067
|
|
Total current assets
|
349,980
|
|
|
374,093
|
|
Non-current assets
|
|
|
|
Property, plant and equipment, net (Note 8)
|
113,901
|
|
|
117,604
|
|
Program rights, net (Note 5)
|
166,237
|
|
|
171,871
|
|
Goodwill (Note 3)
|
667,988
|
|
|
676,333
|
|
Other intangible assets, net (Note 3)
|
127,589
|
|
|
136,052
|
|
Other non-current assets (Note 7)
|
22,167
|
|
|
12,408
|
|
Total non-current assets
|
1,097,882
|
|
|
1,114,268
|
|
Total assets
|
$
|
1,447,862
|
|
|
$
|
1,488,361
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable and accrued liabilities (Note 9)
|
$
|
135,650
|
|
|
$
|
120,468
|
|
Current portion of long-term debt and other financing arrangements (Note 4)
|
6,836
|
|
|
5,545
|
|
Other current liabilities (Note 10)
|
13,515
|
|
|
13,679
|
|
Total current liabilities
|
156,001
|
|
|
139,692
|
|
Non-current liabilities
|
|
|
|
|
|
Long-term debt and other financing arrangements (Note 4)
|
600,273
|
|
|
782,685
|
|
Other non-current liabilities (Note 10)
|
80,000
|
|
|
67,293
|
|
Total non-current liabilities
|
680,273
|
|
|
849,978
|
|
Commitments and contingencies (Note 21)
|
|
|
|
|
|
TEMPORARY EQUITY
|
|
|
|
200,000 shares of Series B Convertible Redeemable Preferred Stock of $0.08 each (December 31, 2018 - 200,000) (Note 13)
|
269,370
|
|
|
269,370
|
|
EQUITY
|
|
|
|
|
|
CME Ltd. shareholders’ equity (Note 14):
|
|
|
|
|
|
One share of Series A Convertible Preferred Stock of $0.08 each (December 31, 2018 – one)
|
—
|
|
|
—
|
|
253,607,026 shares of Class A Common Stock of $0.08 each (December 31, 2018 – 252,853,554)
|
20,288
|
|
|
20,228
|
|
Nil shares of Class B Common Stock of $0.08 each (December 31, 2018 – nil)
|
—
|
|
|
—
|
|
Additional paid-in capital
|
2,007,275
|
|
|
2,003,518
|
|
Accumulated deficit
|
(1,458,942
|
)
|
|
(1,578,076
|
)
|
Accumulated other comprehensive loss
|
(226,916
|
)
|
|
(216,650
|
)
|
Total CME Ltd. shareholders’ equity
|
341,705
|
|
|
229,020
|
|
Noncontrolling interests
|
513
|
|
|
301
|
|
Total equity
|
342,218
|
|
|
229,321
|
|
Total liabilities and equity
|
$
|
1,447,862
|
|
|
$
|
1,488,361
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / LOSS
(US$ 000’s, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Net revenues
|
$
|
694,804
|
|
|
$
|
703,906
|
|
|
$
|
642,868
|
|
Operating expenses:
|
|
|
|
|
|
Content costs
|
284,715
|
|
|
309,439
|
|
|
293,728
|
|
Other operating costs
|
54,826
|
|
|
56,731
|
|
|
55,924
|
|
Depreciation of property, plant and equipment
|
33,536
|
|
|
32,933
|
|
|
31,261
|
|
Amortization of intangibles
|
8,457
|
|
|
9,002
|
|
|
8,592
|
|
Cost of revenues
|
381,534
|
|
|
408,105
|
|
|
389,505
|
|
Selling, general and administrative expenses
|
125,934
|
|
|
118,214
|
|
|
113,449
|
|
Operating income
|
187,336
|
|
|
177,587
|
|
|
139,914
|
|
Interest expense (Note 15)
|
(30,694
|
)
|
|
(49,106
|
)
|
|
(83,188
|
)
|
Other non-operating (expense) / income, net (Note 16)
|
(2,208
|
)
|
|
(3,588
|
)
|
|
16,841
|
|
Income before tax
|
154,434
|
|
|
124,893
|
|
|
73,567
|
|
Provision for income taxes
|
(35,226
|
)
|
|
(27,828
|
)
|
|
(22,504
|
)
|
Income from continuing operations
|
119,208
|
|
|
97,065
|
|
|
51,063
|
|
Income / (loss) from discontinued operations, net of tax
|
—
|
|
|
60,548
|
|
|
(1,636
|
)
|
Net income
|
119,208
|
|
|
157,613
|
|
|
49,427
|
|
Net (income) / loss attributable to noncontrolling interests
|
(74
|
)
|
|
79
|
|
|
341
|
|
Net income attributable to CME Ltd.
|
$
|
119,134
|
|
|
$
|
157,692
|
|
|
$
|
49,768
|
|
|
|
|
|
|
|
Net income
|
$
|
119,208
|
|
|
$
|
157,613
|
|
|
$
|
49,427
|
|
Other comprehensive (loss) / income
|
|
|
|
|
|
Currency translation adjustment (Note 14)
|
(6,149
|
)
|
|
(23,050
|
)
|
|
54,368
|
|
Unrealized (loss) / gain on derivative instruments (Note 14)
|
(3,979
|
)
|
|
(5,800
|
)
|
|
1,269
|
|
Total other comprehensive (loss) / income
|
(10,128
|
)
|
|
(28,850
|
)
|
|
55,637
|
|
Comprehensive income
|
109,080
|
|
|
128,763
|
|
|
105,064
|
|
Comprehensive (income) / loss attributable to noncontrolling interests
|
(212
|
)
|
|
(283
|
)
|
|
1,254
|
|
Comprehensive income attributable to CME Ltd.
|
$
|
108,868
|
|
|
$
|
128,480
|
|
|
$
|
106,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA (Note 19):
|
|
|
|
|
|
Net income / (loss) per share:
|
|
|
|
|
|
Continuing operations — basic
|
$
|
0.32
|
|
|
$
|
0.27
|
|
|
$
|
0.16
|
|
Continuing operations — diluted
|
0.32
|
|
|
0.25
|
|
|
0.12
|
|
Discontinued operations — basic
|
—
|
|
|
0.18
|
|
|
(0.01
|
)
|
Discontinued operations — diluted
|
—
|
|
|
0.17
|
|
|
0.00
|
|
Attributable to CME Ltd. — basic
|
0.32
|
|
|
0.45
|
|
|
0.15
|
|
Attributable to CME Ltd. — diluted
|
0.32
|
|
|
0.42
|
|
|
0.12
|
|
|
|
|
|
|
|
Weighted average common shares used in computing per share amounts (000’s):
|
|
|
|
|
|
Basic
|
264,611
|
|
|
230,562
|
|
|
155,846
|
|
Diluted
|
266,198
|
|
|
257,694
|
|
|
236,404
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF EQUITY
(US$ 000’s, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CME Ltd.
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock
|
|
Class A
Common Stock
|
|
Class B
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
Par value
|
|
Number of shares
|
Par value
|
|
Number of shares
|
Par value
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
|
Noncontrolling Interest
|
|
|
Total (Deficit) / Equity
|
|
BALANCE
December 31, 2016
|
1
|
|
$
|
—
|
|
|
143,449,913
|
|
$
|
11,476
|
|
|
—
|
|
$
|
—
|
|
$
|
1,910,244
|
|
$
|
(1,785,536
|
)
|
$
|
(243,988
|
)
|
|
$
|
1,272
|
|
|
$
|
(106,532
|
)
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
4,412
|
|
—
|
|
—
|
|
|
—
|
|
|
4,412
|
|
Exercise of warrants
|
—
|
|
—
|
|
|
1,148,469
|
|
92
|
|
|
—
|
|
—
|
|
1,056
|
|
—
|
|
—
|
|
|
—
|
|
|
1,148
|
|
Share issuance, stock based compensation
|
—
|
|
—
|
|
|
888,115
|
|
71
|
|
|
—
|
|
—
|
|
(71
|
)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Withholding tax on net share settlement of stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(168
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(168
|
)
|
Preferred dividend paid in kind
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(9,694
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(9,694
|
)
|
Net income / (loss)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
49,768
|
|
—
|
|
|
(341
|
)
|
|
49,427
|
|
Unrealized gain on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,269
|
|
|
—
|
|
|
1,269
|
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
55,281
|
|
|
(913
|
)
|
|
54,368
|
|
BALANCE
December 31, 2017
|
1
|
|
$
|
—
|
|
|
145,486,497
|
|
$
|
11,639
|
|
|
—
|
|
$
|
—
|
|
$
|
1,905,779
|
|
$
|
(1,735,768
|
)
|
$
|
(187,438
|
)
|
|
$
|
18
|
|
|
$
|
(5,770
|
)
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
7,083
|
|
—
|
|
—
|
|
|
—
|
|
|
7,083
|
|
Exercise of warrants
|
—
|
|
—
|
|
|
105,652,401
|
|
8,452
|
|
|
—
|
|
—
|
|
97,200
|
|
—
|
|
—
|
|
|
—
|
|
|
105,652
|
|
Share issuance, stock based compensation
|
—
|
|
—
|
|
|
1,714,656
|
|
137
|
|
|
—
|
|
—
|
|
(137
|
)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Withholding tax on net share settlement of stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(1,630
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(1,630
|
)
|
Preferred dividend paid in kind
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(4,777
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(4,777
|
)
|
Net income / (loss)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
157,692
|
|
—
|
|
|
(79
|
)
|
|
157,613
|
|
Unrealized loss on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(5,800
|
)
|
|
—
|
|
|
(5,800
|
)
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(23,412
|
)
|
|
362
|
|
|
(23,050
|
)
|
BALANCE
December 31, 2018
|
1
|
|
$
|
—
|
|
|
252,853,554
|
|
$
|
20,228
|
|
|
—
|
|
$
|
—
|
|
$
|
2,003,518
|
|
$
|
(1,578,076
|
)
|
$
|
(216,650
|
)
|
|
$
|
301
|
|
|
$
|
229,321
|
|
Stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
4,184
|
|
—
|
|
—
|
|
|
—
|
|
|
4,184
|
|
Share issuance, stock-based compensation
|
—
|
|
—
|
|
|
753,472
|
|
60
|
|
|
—
|
|
—
|
|
(60
|
)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Withholding tax on net share settlement of stock-based compensation
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(367
|
)
|
—
|
|
—
|
|
|
—
|
|
|
(367
|
)
|
Net income
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
119,134
|
|
—
|
|
|
74
|
|
|
119,208
|
|
Unrealized loss on derivative instruments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,979
|
)
|
|
—
|
|
|
(3,979
|
)
|
Currency translation adjustment
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(6,287
|
)
|
|
138
|
|
|
(6,149
|
)
|
BALANCE
December 31, 2019
|
1
|
|
$
|
—
|
|
|
253,607,026
|
|
$
|
20,288
|
|
|
—
|
|
$
|
—
|
|
$
|
2,007,275
|
|
$
|
(1,458,942
|
)
|
$
|
(226,916
|
)
|
|
$
|
513
|
|
|
$
|
342,218
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ 000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net income
|
$
|
119,208
|
|
|
$
|
157,613
|
|
|
$
|
49,427
|
|
Adjustments to reconcile net income to net cash generated from continuing operating activities:
|
|
|
|
|
|
|
(Income) / loss from discontinued operations, net of tax
|
—
|
|
|
(60,548
|
)
|
|
1,636
|
|
Amortization of program rights
|
284,715
|
|
|
309,439
|
|
|
293,728
|
|
Depreciation and other amortization
|
45,379
|
|
|
46,437
|
|
|
45,871
|
|
Interest and related Guarantee Fees paid in kind
|
—
|
|
|
3,783
|
|
|
23,331
|
|
Loss on extinguishment of debt
|
340
|
|
|
415
|
|
|
101
|
|
Gain on disposal of fixed assets
|
(84
|
)
|
|
(90
|
)
|
|
(108
|
)
|
Deferred income taxes
|
(742
|
)
|
|
2,734
|
|
|
(483
|
)
|
Stock-based compensation (Note 17)
|
4,184
|
|
|
7,083
|
|
|
4,412
|
|
Change in fair value of derivatives
|
201
|
|
|
1,322
|
|
|
231
|
|
Foreign currency exchange loss / (gain), net
|
661
|
|
|
2,376
|
|
|
(13,773
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable, net
|
2,356
|
|
|
(16,461
|
)
|
|
(325
|
)
|
Accounts payable and accrued liabilities
|
11,892
|
|
|
(8,597
|
)
|
|
(1,588
|
)
|
Program rights
|
(278,453
|
)
|
|
(307,490
|
)
|
|
(310,798
|
)
|
Other assets and liabilities
|
(4,107
|
)
|
|
587
|
|
|
3,385
|
|
Accrued interest
|
(768
|
)
|
|
(31,338
|
)
|
|
(3,727
|
)
|
Income taxes payable
|
(7
|
)
|
|
(2,878
|
)
|
|
7,554
|
|
Deferred revenue
|
476
|
|
|
6,293
|
|
|
(2,272
|
)
|
VAT and other taxes payable
|
(5,599
|
)
|
|
(1,656
|
)
|
|
(3,301
|
)
|
Net cash generated from continuing operating activities
|
$
|
179,652
|
|
|
$
|
109,024
|
|
|
$
|
93,301
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
$
|
(24,423
|
)
|
|
$
|
(24,583
|
)
|
|
$
|
(28,115
|
)
|
Proceeds from disposal of property, plant and equipment
|
48
|
|
|
43
|
|
|
168
|
|
Net cash used in continuing investing activities
|
$
|
(24,375
|
)
|
|
$
|
(24,540
|
)
|
|
$
|
(27,947
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Repayments of debt
|
$
|
(168,913
|
)
|
|
$
|
(270,780
|
)
|
|
$
|
(59,060
|
)
|
Debt transactions costs
|
—
|
|
|
(10,746
|
)
|
|
(106
|
)
|
Settlement of derivative instruments
|
(1,712
|
)
|
|
—
|
|
|
—
|
|
Payment of credit facilities and capital leases
|
(7,097
|
)
|
|
(4,858
|
)
|
|
(2,999
|
)
|
Proceeds from exercise of warrants
|
—
|
|
|
105,652
|
|
|
1,148
|
|
Proceeds from sale-leaseback transactions
|
—
|
|
|
—
|
|
|
2,746
|
|
Payments of withholding tax on net share settlement of stock-based compensation
|
(367
|
)
|
|
(1,630
|
)
|
|
(168
|
)
|
Net cash used in continuing financing activities
|
$
|
(178,089
|
)
|
|
$
|
(182,362
|
)
|
|
$
|
(58,439
|
)
|
|
|
|
|
|
|
Net cash provided by discontinued operations - operating activities
|
—
|
|
|
1,842
|
|
|
736
|
|
Net cash provided by / (used in) discontinued operations - investing activities
|
—
|
|
|
100,724
|
|
|
(877
|
)
|
|
|
|
|
|
|
Impact of exchange rate fluctuations on cash
|
(2,598
|
)
|
|
(1,405
|
)
|
|
11,020
|
|
Net (decrease) / increase in cash and cash equivalents
|
$
|
(25,410
|
)
|
|
$
|
3,283
|
|
|
$
|
17,794
|
|
CASH AND CASH EQUIVALENTS, beginning of year
|
62,031
|
|
|
58,748
|
|
|
40,954
|
|
CASH AND CASH EQUIVALENTS, end of year
|
$
|
36,621
|
|
|
$
|
62,031
|
|
|
$
|
58,748
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ 000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
Cash paid for interest (including Guarantee Fees)
|
$
|
26,651
|
|
|
$
|
43,350
|
|
|
$
|
47,197
|
|
Cash paid for Guarantee Fees previously paid in kind
|
—
|
|
|
27,328
|
|
|
—
|
|
Cash paid for Guarantee Fees that previously could be paid in kind
|
—
|
|
|
812
|
|
|
8,343
|
|
Cash paid for income taxes, net of refunds
|
35,998
|
|
|
28,365
|
|
|
15,143
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
|
|
|
|
|
|
Accretion on Series B Convertible Redeemable Preferred Stock
|
$
|
—
|
|
|
$
|
4,777
|
|
|
$
|
9,694
|
|
Acquisition of property, plant and equipment under finance lease
|
5,753
|
|
|
13,419
|
|
|
8,811
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
1. ORGANIZATION AND BUSINESS
Central European Media Enterprises Ltd., a Bermuda company limited by shares, is a media and entertainment company operating in Central and Eastern Europe. Our assets are held through a Dutch holding company. We manage our business on a geographical basis, with five operating segments; Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. See Note 20, "Segment Data" for financial information by segment. Our previously held Croatian operations, which were sold during 2018, are classified as discontinued operations in our consolidated statements of operations for the years ended December 31, 2018 and December 31, 2017.
We are the market-leading broadcasters in each of our five operating countries with a combined portfolio of 30 television channels. Each country develops and produces content for their television channels. We generate advertising revenues primarily through entering into agreements with advertisers, advertising agencies and sponsors to place advertising on the television channels that we operate. We generate additional revenues by collecting fees from cable, direct-to-home and internet protocol television ("IPTV") operators for carriage of our channels as well as from advertising related to our digital initiatives. Unless otherwise indicated, we own 100% of our broadcast operating and license companies in each country.
Bulgaria
We operate one general entertainment channel, BTV, and five other channels, BTV CINEMA, BTV COMEDY, BTV ACTION, BTV LADY and RING. We own 94% of CME Bulgaria B.V., the subsidiary that owns our Bulgaria operations.
Czech Republic
We operate one general entertainment channel, TV NOVA, and seven other channels, NOVA 2, NOVA CINEMA, NOVA SPORT 1, NOVA SPORT 2, NOVA ACTION, NOVA GOLD and NOVA INTERNATIONAL, a general entertainment channel broadcasting in the Slovak Republic.
Romania
We operate one general entertainment channel, PRO TV, and six other channels, PRO 2, PRO X, PRO GOLD, PRO CINEMA, PRO TV INTERNATIONAL, as well as PRO TV CHISINAU, a general entertainment channel broadcasting in Moldova.
Slovak Republic
We operate one general entertainment channel, TV MARKIZA, and three other channels, DOMA, DAJTO, and MARKIZA INTERNATIONAL, a general entertainment channel broadcasting in the Czech Republic.
Slovenia
We operate two general entertainment channels, POP TV and KANAL A, and three other channels, KINO, BRIO and OTO.
Merger
On October 27, 2019, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with TV Bidco B.V. ("Parent") and TV Bermuda Ltd. ("Merger Sub"). Parent and Merger Sub are affiliates of PPF Group N.V. Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company (the "Merger"), with the Company continuing as the surviving company in the proposed Merger as a wholly-owned subsidiary of Parent.
The closing of the proposed Merger is subject to several conditions, including, but not limited to, the requisite vote of the Company’s shareholders in favor of the Merger Agreement and the proposed Merger, the receipt of certain competition and other regulatory approvals, compliance with covenants and agreements in the Merger Agreement (subject to certain materiality qualifications), and the absence of any governmental order prohibiting completion of the proposed Merger. A special general meeting of shareholders of the Company will be held on February 27, 2020, where shareholders will be asked to vote on a proposal to approve the Merger Agreement, the related statutory merger agreement and the Merger contemplated under such agreements.
Under the Merger Agreement, at the effective time of the proposed Merger (the “Effective Time”), without any action required by the Company, Parent, Merger Sub or any shareholder of the Company or any other person, each Class A Share issued and outstanding immediately prior to the Effective Time will be canceled and cease to exist automatically and each such Class A Share (other than shares owned by the Company, Parent, Merger Sub or any of their respective direct or indirect wholly-owned subsidiaries, in each case not held on behalf of third parties) will be converted into the right to receive $4.58 in cash.
Under the Merger Agreement, at the Effective Time, without any action required by the Company, Parent, Merger Sub or any shareholder of the Company or any other person, the Series A Preferred Share issued and outstanding immediately prior to the Effective Time will be canceled and cease to exist automatically and will be converted into the right to receive the $32,900,000 in cash, without interest and each Series B Preferred Share issued and outstanding immediately prior to the Effective Time will be canceled and cease to exist automatically and will be converted into the right to receive the $1,630.875 in cash, without interest; provided that, among other things, any conversion of the Series A Preferred Share or any Series B Preferred Shares into Class A Shares on or after October 27, 2019 will be deemed to be null and void.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The terms the "Company", "we", "us", and "our" are used in this Form 10-K to refer collectively to the parent company, Central European Media Enterprises Ltd. ("CME Ltd."), and the subsidiaries through which our various businesses are conducted. Unless otherwise noted, all statistical and financial information presented in this report has been converted into U.S. dollars using period-end exchange rates. All references to "US$", "USD" or "dollars" are to U.S. dollars, all references to "BGN" are to the Bulgarian leva, all references to "CZK" are to the Czech koruna, all references to "RON" are to the New Romanian lei, and all references to "Euro" or "EUR" are to the European Union Euro. Where applicable, prior period presentation has been modified to conform to current year presentation.
Basis of Consolidation
The consolidated financial statements include the accounts of CME Ltd. and our subsidiaries, after the elimination of intercompany accounts and transactions. Entities in which we hold less than a majority voting interest but over which we have the ability to exercise significant influence are accounted for using the equity method. Other investments are accounted for using the cost method.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Use of Estimates
The preparation of financial statements in conformity with US Generally Accepted Accounting Principles ("US GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.
Summary of Critical and Significant Accounting Policies
The following is a discussion of each of the Company’s critical accounting policies, including information and analysis of estimates and assumptions involved in their application, and other significant accounting policies.
Revenue Recognition
Revenue Recognition
Revenues are recognized upon satisfaction of our performance obligations to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services, net of taxes assessed by a government authority that are both imposed on and concurrent with the specific revenue-producing transaction and collected from the customer.
The timing of revenue recognition may differ from the timing of invoicing to customers. We defer the recognition of revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. We record a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Invoicing typically occurs on a monthly basis and customers are obliged to pay within 30 to 60 days of issuance. For certain services and customer types, we require payment before the services are provided.
We maintain a bad debt provision for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, additional allowances may be required in future periods. We review the accounts receivable balances periodically and our historical bad debt, customer concentrations and customer creditworthiness when evaluating the adequacy of our provision. In the event we recover amounts previously written off, we release the specific allowance to bad debt expense.
In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from or to provide financing to our customers.
Our principal revenue streams and their respective accounting treatments are discussed below:
Television advertising revenues primarily result from the sale of advertising time. Television advertising revenues are earned as the commercials are aired. In many countries, we commit to provide advertisers with certain rating levels in connection with their advertising. Revenue is recorded based on a charge per Gross Rating Point ("GRP") ordered during the month, net of estimated shortfalls. Discounts and agency commissions on television advertising revenue are recognized on a monthly basis and are reflected as a reduction to gross revenue.
Carriage fees and subscription revenues include revenues from cable operators and direct-to-home broadcasters and fees from subscriptions to our streaming services. Revenues from cable operators and direct-to-home broadcasters are recognized as revenue over the period for which the channels are provided and to which the fees relate. This fee revenue is generally based on the number of subscribers to offerings from these operators and broadcasters that include our channels. The impacts of future changes in subscriber levels are recognized when they occur as estimates of future subscribers are constrained. Revenues from subscriptions to our streaming services are recognized over the period of the subscription.
Other revenues primarily include revenues from our internet display advertising, as well as revenues from the licensing of our content. Internet display advertising revenues are recognized on a cost-per-impression basis based on the number of times a customer's advertisement is displayed on our websites. Revenues from the licensing of our content are recognized upon delivery or reasonable access to the content.
Our revenue streams involve significant judgment with respect to the discounts and agency commissions we provide to certain customers based on the amount of advertising purchased. Such discounts are based on estimates of the total amount expected to be earned and reduce revenue based on a systematic and rational allocation of the cost of honoring the discounts earned and claimed to each of the underlying revenue transactions that result in progress by the customer towards earning the discount. Due to the timing of the information provided by the rating agencies, significant judgment may be necessary to estimate the total volume of GRPs delivered within the contract period.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and marketable securities, if applicable, with original maturities of three months or less. Cash that is subject to restrictions is classified as restricted cash, if applicable.
Program Rights
Purchased program rights
Purchased program rights and the related liabilities are recorded at their gross value when the license period begins and the programs are available for broadcast.
Purchased program rights are classified as current or non-current assets based on anticipated usage, while the related program rights liability is classified as current or non-current according to the payment terms of the license agreement.
Program rights are evaluated to determine if expected revenues are sufficient to cover the unamortized portion of the program. To the extent that expected revenues are insufficient, the program rights are written down to their expected net realizable value. These programming impairment charges, along with programming impairment charges related to own-produced content, are presented as a component of content costs in our consolidated statements of operations and comprehensive income / loss.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
The costs incurred to acquire program rights are capitalized and amortized over their expected useful lives in a manner which reflects the pattern we expect to use and benefit from the programming. If the initial airing of content allowed by a license is expected to provide more value than subsequent airings, we apply an accelerated method of amortization. These accelerated methods of amortization depend on the estimated number of runs the content is expected to receive, and are determined based on a study of historical results for similar programming. For programming that is not advertising supported, each program's costs are amortized on a straight-line basis over the license period. For content that is expected to be aired only once, the entire cost is expensed on the first run.
Produced program rights
Program rights that are produced by us consist of deferred film and television costs including direct costs, production overhead and development costs. The costs are stated at the lower of cost, net of accumulated amortization, or net realizable value. The amount of capitalized production costs recognized as cost of revenues for a given production as it is exhibited in various markets is determined using the individual film forecast method. The proportion of costs recognized is equal to the proportion of the revenue recognized compared to the total revenue expected to be generated throughout the product's life cycle (the "ultimate revenues"). Our process for evaluating ultimate revenues is tailored to the potential we believe a title has for generating multiple revenues. The majority of our production is intended primarily for exploitation by our own broadcasters. In such cases, we consider mainly the free television window in our calculation of the ultimate revenues. Changes in estimates of ultimate revenues from period to period affect the amount of film costs amortized in a given period and, therefore, could have an impact on our results for that period.
Produced program rights are amortized on an individual production basis using the ratio of the current period's gross revenues to estimated remaining total ultimate revenues from such programs. Produced program rights are evaluated to determine if expected revenues, less additional costs to be incurred (including exploitation costs) are sufficient to cover the unamortized portion of the program. To the extent that expected revenues are insufficient, the program rights are written down to their net realizable value.
Property, Plant and Equipment
Property, plant and equipment is carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives assigned to each major asset category as below:
|
|
|
Asset category
|
Estimated useful life
|
Land
|
Indefinite
|
Buildings
|
25 years
|
Machinery, fixtures and equipment
|
4 - 8 years
|
Other equipment
|
3 - 8 years
|
Software
|
3 - 5 years
|
Construction-in-progress is not depreciated until put into use. Assets under finance leases are depreciated on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. Leasehold improvements are depreciated over the shorter of the related lease term or the life of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value, less expected costs of disposal.
Long-Lived Assets Including Intangible Assets with Finite Lives
Long-lived assets include property, plant, equipment and intangible assets with finite lives. We evaluate the remaining useful life of intangible assets with finite lives each reporting period. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets are evaluated at the asset group level when there is an indication that they may be impaired. The carrying amounts of long-lived assets are considered impaired when the anticipated undiscounted cash flows from such assets are less than their carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value.
Goodwill and Indefinite-Lived Intangible Assets
We evaluate goodwill and indefinite-lived intangible assets for impairment annually as of October 1, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Such events and changes in circumstances include:
|
|
•
|
under-performance of operating segments or changes in projected results;
|
|
|
•
|
changes in the manner of utilization of an asset;
|
|
|
•
|
severe and sustained declines in the trading price of shares of our Class A common stock that are not attributable to factors other than the underlying value of our assets;
|
|
|
•
|
negative market conditions or economic trends; and
|
|
|
•
|
specific events, such as new legislation, new market entrants, changes in technology or adverse legal judgments that we believe could have a negative impact on our business.
|
Goodwill is evaluated at the reporting unit level, which we have determined is each of our five operating segments. We elected to bypass the qualitative assessment for all of our reporting units in 2019 and proceeded directly to performing the quantitative goodwill impairment test. The fair values of our reporting units were determined based on the present value of expected future cash flows, including terminal value, discounted at appropriate rates, determined separately for each reporting unit, and on publicly available information, where appropriate. The determination of fair value involves the use of significant estimates and assumptions, including: revenue growth rates, operating margins, capital expenditures, working capital requirements, tax rates, terminal growth rates, management's long-term plan and a discount rate selected with reference to the relevant cost of capital. An impairment exists when the carrying amount of a reporting unit (including its goodwill), exceeds its fair value.
We evaluate whether the useful life of each indefinite-lived intangible asset remains indefinite. Each indefinite-lived intangible asset is evaluated for impairment individually. The fair values of our indefinite-lived intangible assets are determined using the relief from royalty method. An impairment loss is recognized if the carrying amount of an indefinite-lived intangible asset exceeds its fair value.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Income Taxes
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than not to be realized. In evaluating the realizability of our deferred tax assets, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.
We recognize in the consolidated financial statements those tax positions determined to be "more likely than not" of being sustained upon examination, based on the technical merits of the positions and we recognize, when applicable, both accrued interest and penalties related to uncertain tax positions in income tax expense in the accompanying consolidated statements of operations and comprehensive income / loss.
Foreign Currency
Translation of financial statements
Our reporting currency is the dollar. The financial statements of our operations whose functional currency is other than the dollar are translated from such functional currency to dollars at the exchange rates in effect at the balance sheet date for assets and liabilities, and at weighted average rates for the period for revenues and expenses, including gains and losses. Translational gains and losses are charged or credited to accumulated other comprehensive income / loss, a component of equity.
Certain of our intercompany loans to our subsidiaries are of a long-term investment nature. We recorded the results of the retranslation of these intercompany loans as an adjustment to accumulated other comprehensive income / loss, a component of shareholders' equity, as settlement of these loans is not planned or anticipated in the foreseeable future.
Transactions in foreign currencies
Gains and losses from foreign currency transactions are included in foreign currency exchange gain / loss, net in the consolidated statements of operations and comprehensive income / loss in the period during which they arise.
Leases
We determine if an arrangement includes a lease at inception. A right-of-use asset ("ROU") represents our right to use an underlying asset for the lease term and the corresponding lease liability represents our obligation to make periodic payments arising from that lease. ROUs and liabilities are recognized at their commencement date based on the present value of the lease payments over the lease term. As most of our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at the commencement date of a lease in determining the present value of the lease payments. An ROU also includes any lease payments made prior to commencement and excludes any lease incentives received or to be received under the agreement. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise such option.
Where lease agreements include both lease and non-lease components, we generally account for each separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. We consider operating leases that are for a period less than 12 months, inclusive of options to extend that we are reasonably certain to exercise, as short-term. Short-term leases are not recognized on the balance sheet. Short-term lease cost is recognized on a straight-line basis over the lease term.
ROUs and related operating lease liabilities are included in other non-current assets, other current liabilities and other non-current liabilities, respectively on our consolidated balance sheets. Operating lease costs are recognized on a straight-line basis over the lease term within content costs, other operating costs or sales, general and administrative expenses based on the use of the related ROU. ROUs and related finance lease liabilities are included in property and equipment, and long-term debt and other financing arrangements, respectively, on our consolidated balance sheets. Depreciation of an asset held under a finance lease is recognized in depreciation of property, plant and equipment.
See below "Recent Accounting Pronouncements" for information on the adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 842, "Leases" as at January 1, 2019.
Financial Instruments
Fair value of financial instruments
The carrying amount of financial instruments, including cash, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value due to the short-term nature of these items. The fair value of our long-term debt (as defined hereinafter) is included in Note 4, "Long-term Debt and Other Financing Arrangements".
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. US GAAP requires significant management estimates in determining fair value. The extent of management’s judgments is highly dependent on the valuation model employed and the observability of inputs to the fair value model. The level of management judgment required in establishing fair value of financial instruments is more significant where there is no active market in which the instrument is traded. For financial instruments that are not remeasured through net income, we estimate fair value at issuance and account for the instrument at amortized cost. For financial instruments that are remeasured through net income, we assess the fair value of the instrument at each period end or earlier when events occur or circumstances change that would so require (see Note 12, "Financial Instruments and Fair Value Measurements").
Derivative financial instruments
We use derivative financial instruments for the purpose of mitigating currency and interest rate risks, which exist as part of ongoing business operations and financing activities. As a policy, we do not engage in speculative or leveraged transactions, nor do we hold or issue derivative financial instruments for trading purposes.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Forward exchange contracts and currency swaps are used to mitigate exposures to currency fluctuations on certain short-term transactions generally denominated in currencies other than our functional currency. These contracts are marked to market at the balance sheet date, and the resultant unrealized gains and losses are recorded in the consolidated statements of operations and comprehensive income / loss, together with realized gains and losses arising on settlement of these contracts.
Interest rate swaps and other instruments may be used to mitigate exposures to interest rate fluctuations on certain of our long-term debt instruments with variable interest rates. These contracts are marked to market at the balance sheet date, and the resultant unrealized gains and losses are recorded in the consolidated statements of operations and comprehensive income / loss, together with realized gains and losses arising on settlement of these contracts. From time to time, we may designate certain of these instruments as hedges and apply hedge accounting as discussed in Note 12, "Financial Instruments and Fair Value Measurements".
Stock-Based Compensation
Stock-based compensation is recognized at fair value using the Black-Scholes option pricing model calculated as the closing price of our Class A common stock on the date of grant. The fair value of stock awards is recognized on a straight-line basis over the vesting period of the award as a component of selling, general and administrative expenses.
For awards with performance conditions, recognition of compensation expense over the vesting period depends on our assessment of the probability that the performance targets will be met. We update our assessments of the probability of achieving performance targets at each reporting period. Changes in our assessments of such probability may result in recording additional expense or reversing previously recorded expense in the current period reported.
Upon vesting of shares or exercise of options, shares of Class A common stock are issued from authorized but unissued shares. Stock-based compensation awards are accounted for as equity-settled transactions. Forfeitures of awards are recognized as they occur.
Contingencies
The estimated loss from a loss contingency such as a legal proceeding or other claim is recorded in the consolidated statements of operations and comprehensive income / loss if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a loss contingency is made if there is at least a reasonable possibility that a loss has been incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense incurred for the years ended December 31, 2019, 2018 and 2017 totaled US$ 6.4 million, US$ 6.2 million and US$ 5.4 million, respectively.
Earnings Per Share
Basic and diluted net income / loss per share is calculated using the two-class method. Under the two-class method, basic net income / loss per common share is computed by dividing the net income available to common shareholders after deducting contractual amounts of accretion on our Series B Preferred Shares, as well as income allocated to these shares, by the weighted-average number of common shares outstanding during the period including the common stock underlying the Series A Preferred Shares. Diluted net income / loss per share is computed by dividing the adjusted net income by the weighted-average number of dilutive shares outstanding during the period after adjusting for the impact of those dilutive shares on the allocation of income to the Series B Preferred Shares. For further information on how to calculate basic and diluted earnings per share for continuing operations and discontinued operations, see Note 19, "Earnings per-share".
Recent Accounting Pronouncements
Accounting Pronouncements Adopted
In February 2016, the FASB issued guidance to increase transparency and comparability among organizations by recognizing leasing assets and liabilities on the balance sheet and requiring additional disclosures about an entity's leasing arrangements. The guidance requires that a lessee recognize a liability to make lease payments and an ROU, with an available exception for leases with an initial term shorter than twelve months. Adoption of the guidance changed our accounting for operating leases while the accounting for our finance leases (previously called capital leases) remained substantially unchanged.
We adopted this guidance as of the transition date of January 1, 2019, using the modified retrospective approach and have elected the transition option which allows us to continue to apply the legacy guidance for comparative periods, including disclosure requirements, in the year of adoption. We have elected to use the package of practical expedients available to us, including the short-term lease exception, however we have not elected the use of hindsight and have not elected to combine lease and non-lease components for our main classes of assets.
On transition, we recorded US$ 11.9 million in operating lease liabilities and related ROUs.
Recent Accounting Pronouncements Issued
In June 2016, the FASB issued new guidance to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments replace the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance is effective for our fiscal year beginning January 1, 2020. Based on our assessment, the guidance primarily applies to our accounts receivable and is not expected to substantially change our procedures for estimating our bad debt expense or the anticipated results of those procedures. We adopted this guidance on January 1, 2020.
In March 2019, the FASB issued new guidance that aligns the accounting for production costs of an episodic television series with the accounting for production costs of films. The guidance further requires that an entity test a film or license agreement or program material for impairment at a film group level and under a fair value model when the film or license agreement is predominantly monetized with other films and/or license agreements. Further, content acquired under a license agreement is not required to be separately presented on the balance sheet based on the estimated time of usage. Additional disclosures are required. We adopted this guidance on January 1, 2020. Based on our assessment of the guidance, each operating segment predominantly monetizes its content as a film group and we anticipate classifying all our acquired content as non-current on our consolidated balance sheets. We do not anticipate that this guidance will significantly impact the impairment we recognize in the consolidated statement of operations.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
3. GOODWILL AND INTANGIBLE ASSETS
Goodwill:
Goodwill by reporting unit as at December 31, 2019 and December 31, 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulgaria
|
|
Czech Republic
|
|
Romania
|
|
Slovak Republic
|
|
Slovenia
|
|
Total
|
Gross Balance, December 31, 2017
|
$
|
175,071
|
|
|
$
|
837,732
|
|
|
$
|
90,305
|
|
|
$
|
52,463
|
|
|
$
|
19,400
|
|
|
$
|
1,174,971
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(462,612
|
)
|
Balance, December 31, 2017
|
30,432
|
|
|
550,187
|
|
|
79,277
|
|
|
52,463
|
|
|
—
|
|
|
712,359
|
|
Foreign currency
|
(1,377
|
)
|
|
(28,762
|
)
|
|
(3,505
|
)
|
|
(2,382
|
)
|
|
—
|
|
|
(36,026
|
)
|
Balance, December 31, 2018
|
29,055
|
|
|
521,425
|
|
|
75,772
|
|
|
50,081
|
|
|
—
|
|
|
676,333
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(462,612
|
)
|
Gross Balance, December 31, 2018
|
$
|
173,694
|
|
|
$
|
808,970
|
|
|
$
|
86,800
|
|
|
$
|
50,081
|
|
|
$
|
19,400
|
|
|
$
|
1,138,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulgaria
|
|
Czech Republic
|
|
Romania
|
|
Slovak Republic
|
|
Slovenia
|
|
Total
|
Gross Balance, December 31, 2018
|
$
|
173,694
|
|
|
$
|
808,970
|
|
|
$
|
86,800
|
|
|
$
|
50,081
|
|
|
$
|
19,400
|
|
|
$
|
1,138,945
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(462,612
|
)
|
Balance, December 31, 2018
|
29,055
|
|
|
521,425
|
|
|
75,772
|
|
|
50,081
|
|
|
—
|
|
|
676,333
|
|
Foreign currency
|
(548
|
)
|
|
(3,574
|
)
|
|
(3,279
|
)
|
|
(944
|
)
|
|
—
|
|
|
(8,345
|
)
|
Balance, December 31, 2019
|
28,507
|
|
|
517,851
|
|
|
72,493
|
|
|
49,137
|
|
|
—
|
|
|
667,988
|
|
Accumulated impairment losses
|
(144,639
|
)
|
|
(287,545
|
)
|
|
(11,028
|
)
|
|
—
|
|
|
(19,400
|
)
|
|
(462,612
|
)
|
Gross Balance, December 31, 2019
|
$
|
173,146
|
|
|
$
|
805,396
|
|
|
$
|
83,521
|
|
|
$
|
49,137
|
|
|
$
|
19,400
|
|
|
$
|
1,130,600
|
|
Other intangible assets:
The net book values of our other intangible assets as at December 31, 2019 and December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Indefinite-lived:
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
$
|
85,484
|
|
|
$
|
—
|
|
|
$
|
85,484
|
|
|
$
|
87,356
|
|
|
$
|
—
|
|
|
$
|
87,356
|
|
Amortized:
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
208,669
|
|
|
(169,239
|
)
|
|
$
|
39,430
|
|
|
210,447
|
|
|
(162,936
|
)
|
|
47,511
|
|
Trademarks
|
609
|
|
|
(609
|
)
|
|
—
|
|
|
631
|
|
|
(631
|
)
|
|
—
|
|
Customer relationships
|
54,807
|
|
|
(54,288
|
)
|
|
$
|
519
|
|
|
56,024
|
|
|
(55,158
|
)
|
|
866
|
|
Other
|
4,033
|
|
|
(1,877
|
)
|
|
2,156
|
|
|
1,868
|
|
|
(1,549
|
)
|
|
319
|
|
Total
|
$
|
353,602
|
|
|
$
|
(226,013
|
)
|
|
$
|
127,589
|
|
|
$
|
356,326
|
|
|
$
|
(220,274
|
)
|
|
$
|
136,052
|
|
Net broadcast licenses consist solely of our TV NOVA license in the Czech Republic, which is amortized on a straight-line basis through its expiration date in 2025. Our customer relationships are deemed to have an economic useful life of, and are amortized on a straight-line basis, over five years to fifteen years. Other intangibles primarily consist of non-cloud based software licenses which are typically amortized on a straight-line basis over the shorter of the contractual term or a period of up to five years.
The estimated amortization expense for the succeeding five years for our intangible assets with finite lives as of December 31, 2019 is as follows:
|
|
|
|
|
2020
|
$
|
8,638
|
|
2021
|
8,622
|
|
2022
|
8,313
|
|
2023
|
7,912
|
|
2024
|
7,855
|
|
Impairment of goodwill and other intangible assets:
Our annual assessment of impairment includes the allocation of corporate debt to individual reporting units based on their relative fair values. For the purpose of the impairment assessment, this allocation resulted in a negative carrying value for the Slovak Republic and Slovenia segments, however, these segments were not determined to be impaired.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Upon conclusion of our annual impairment assessment, we determined that the fair value of our reporting units and other intangible assets were substantially in excess of their respective carrying values. We did not recognize any impairment charges in respect of goodwill and other intangible assets during the years ended December 31, 2019, 2018 or 2017. See Note 2, "Basis of Presentation and Summary of Significant Accounting Policies" for further information.
4. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Summary
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Long-term debt
|
$
|
590,777
|
|
|
$
|
772,339
|
|
Other credit facilities and finance leases(1)
|
16,332
|
|
|
15,891
|
|
Total long-term debt and other financing arrangements
|
607,109
|
|
|
788,230
|
|
Less: current maturities(1)
|
(6,836
|
)
|
|
(5,545
|
)
|
Total non-current long-term debt and other financing arrangements
|
$
|
600,273
|
|
|
$
|
782,685
|
|
(1) Balance consists entirely of finance leases. For more information on finance leases, see Note 11, "Leases".
Overview
Total long-term debt and credit facilities comprised the following at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of Liability Component
|
|
|
Debt Issuance Costs (1)
|
|
|
Net Carrying Amount
|
|
2021 Euro Loan
|
$
|
67,781
|
|
|
$
|
(98
|
)
|
|
$
|
67,683
|
|
2023 Euro Loan
|
526,650
|
|
|
(3,556
|
)
|
|
523,094
|
|
2023 Revolving Credit Facility
|
—
|
|
|
—
|
|
|
—
|
|
Total long-term debt and credit facilities
|
$
|
594,431
|
|
|
$
|
(3,654
|
)
|
|
$
|
590,777
|
|
|
|
(1)
|
Debt issuance costs related to the 2021 Euro Loan, the 2023 Euro Loan and the 2023 Revolving Credit Facility (each as defined below) are being amortized on a straight-line basis, which approximates the effective interest method, over the life of the respective instruments. Debt issuance costs related to the 2023 Revolving Credit Facility are classified as non-current assets in our consolidated balance sheet.
|
On January 31, 2019, June 14, 2019 and September 23, 2019, we paid EUR 60.0 million (approximately US$ 68.9 million at January 31, 2019 rates), EUR 40.0 million (approximately US$ 45.1 million at June 14, 2019 rates) and EUR 50.0 million (approximately US$ 54.9 million at September 23, 2019 rates), respectively, of the outstanding principal balance of the 2021 Euro Loan.
At December 31, 2019, the maturity of our long-term debt and credit facilities was as follows:
|
|
|
|
|
2020
|
—
|
|
2021
|
67,781
|
|
2022
|
—
|
|
2023
|
526,650
|
|
2024
|
—
|
|
2025 and thereafter
|
—
|
|
Total long-term debt and credit facilities
|
594,431
|
|
Debt issuance costs
|
(3,654
|
)
|
Carrying amount of long-term debt and credit facilities
|
$
|
590,777
|
|
Long-term Debt
Our long-term debt comprised the following at December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Fair Value
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
2021 Euro Loan
|
$
|
67,683
|
|
|
$
|
240,296
|
|
|
$
|
68,120
|
|
|
$
|
233,058
|
|
2023 Euro Loan
|
523,094
|
|
|
532,043
|
|
|
529,303
|
|
|
502,617
|
|
|
$
|
590,777
|
|
|
$
|
772,339
|
|
|
$
|
597,423
|
|
|
$
|
735,675
|
|
The estimated fair values of the Euro Loans (as defined below) as at December 31, 2019 and December 31, 2018 were determined using the average yield curve of comparable bonds with equivalent credit ratings which is a Level 2 input as described in Note 12, "Financial Instruments and Fair Value Measurements". Certain derivative instruments, including contingent event of default and change of control put options, have been identified as being embedded in each of the Euro Loans. The embedded derivatives are considered clearly and closely related to their respective Euro Loan, and as such are not required to be accounted for separately.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
2021 Euro Loan
As at December 31, 2019, the principal amount of our floating rate senior unsecured term credit facility (the "2021 Euro Loan") outstanding was EUR 60.3 million (approximately US$ 67.8 million). The 2021 Euro Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 12, "Financial Instruments and Fair Value Measurements")) plus a margin of between 1.1% and 1.9% depending on the credit rating of Warner Media. As at December 31, 2019, the all-in borrowing rate on amounts outstanding under the 2021 Euro Loan was 3.25% (the components of which are shown in the table below under the heading "Interest Rate Summary").
Interest on the 2021 Euro Loan is payable quarterly in arrears on each February 13, May 13, August 13 and November 13. The 2021 Euro Loan matures on November 1, 2021 and may be prepaid at our option, in whole or in part, without premium or penalty from cash generated from our operations. From April 26, 2020, the 2021 Euro Loan may be refinanced at our option. The 2021 Euro Loan is a senior unsecured obligation of CME Ltd. and is unconditionally guaranteed by CME Media Enterprises B.V. ("CME BV") and by Warner Media, LLC ("Warner Media") and certain of its subsidiaries.
2023 Euro Loan
As at December 31, 2019, the principal amount of our floating rate senior unsecured term credit facility (the "2023 Euro Loan") outstanding was EUR 468.8 million (approximately US$ 526.7 million). The 2023 Euro Loan bears interest at three-month EURIBOR (fixed pursuant to customary hedging arrangements (see Note 12, "Financial Instruments and Fair Value Measurements")) plus a margin of between 1.1% and 1.9% depending on the credit rating of Warner Media. As at December 31, 2019, the all-in borrowing rate on amounts outstanding under the 2023 Euro Loan was 3.50% (the components of which are shown in the table below under the heading "Interest Rate Summary").
Interest on the 2023 Euro Loan is payable quarterly in arrears on each January 7, April 7, July 7 and October 7. The 2023 Euro Loan matures on April 26, 2023 and may be prepaid at our option, in whole or in part, without premium or penalty from cash generated from our operations. From April 26, 2020, the 2023 Euro Loan may be refinanced at our option. The 2023 Euro Loan is a senior unsecured obligation of CME BV and is unconditionally guaranteed by CME Ltd. and by Warner Media and certain of its subsidiaries.
Reimbursement Agreement and Guarantee Fees
In connection with Warner Media’s guarantees of the 2021 Euro Loan and 2023 Euro Loan (collectively, the "Euro Loans"), we entered into a reimbursement agreement (as amended, the “Reimbursement Agreement") with Warner Media. The Reimbursement Agreement provides for the payment of guarantee fees (collectively, the "Guarantee Fees") to Warner Media as consideration for those guarantees, and the reimbursement to Warner Media of any amounts paid by them under any guarantee or through any loan purchase right exercised by it. The loan purchase right allows Warner Media to purchase any amount outstanding under the Euro Loans from the lenders following an event of default under the Euro Loans or the Reimbursement Agreement. The Reimbursement Agreement is guaranteed by our wholly owned subsidiary CME BV and is secured by a pledge over 100% of the outstanding shares of CME BV. The covenants and events of default under the Reimbursement Agreement are substantially the same as under the 2023 Revolving Credit Facility (described below).
We pay Guarantee Fees to Warner Media based on the amounts outstanding on the Euro Loans calculated on a per annum basis and on our consolidated net leverage (as defined in the Reimbursement Agreement) as shown in the tables below:
All-in Rate
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Leverage
|
2021 Euro Loan
|
|
|
2023 Euro Loan
|
|
≥
|
7.0x
|
|
|
|
6.00
|
%
|
|
6.50
|
%
|
<
|
7.0x
|
-
|
6.0x
|
|
5.00
|
%
|
|
5.50
|
%
|
<
|
6.0x
|
-
|
5.0x
|
|
4.25
|
%
|
|
4.75
|
%
|
<
|
5.0x
|
-
|
4.0x
|
|
3.75
|
%
|
|
4.25
|
%
|
<
|
4.0x
|
-
|
3.0x
|
|
3.25
|
%
|
|
3.75
|
%
|
<
|
3.0x
|
|
|
|
3.25
|
%
|
|
3.50
|
%
|
Our consolidated net leverage as at December 31, 2019 and December 31, 2018 was 2.4x and 3.5x, respectively. For the years ended December 31, 2019, 2018 and 2017, we recognized US$ 13.4 million, US$ 26.7 million; and US$ 55.7 million, respectively, of Guarantee Fees as interest expense in our consolidated statements of operations and comprehensive income / loss.
The Guarantee Fees relating to the 2021 Euro Loan are payable semi-annually in arrears on each May 1 and November 1. The Guarantee Fees relating to the 2023 Euro Loan are payable semi-annually in arrears on each June 1 and December 1.
The Guarantee Fees on the 2023 Euro Loan that were previously paid in kind are presented as a component of other non-current liabilities (see Note 10, "Other Liabilities") and bear interest per annum at the applicable Guarantee Fee rate (as set forth in the table below). Guarantee Fees are included in cash flows from operating activities in our consolidated statements of cash flows.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Interest Rate Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Rate
|
|
|
Rate Fixed Pursuant to Interest Rate Hedges
|
|
|
Guarantee Fee Rate
|
|
|
All-in Borrowing Rate
|
|
2021 Euro Loan
|
1.28
|
%
|
|
0.47
|
%
|
|
1.50
|
%
|
|
3.25
|
%
|
2023 Euro Loan
|
1.28
|
%
|
|
0.28
|
%
|
(1)
|
1.94
|
%
|
|
3.50
|
%
|
2023 Revolving Credit Facility (if drawn)
|
5.16
|
%
|
(2)
|
—
|
|
|
—
|
|
|
5.16
|
%
|
|
|
(1)
|
Effective until February 19, 2021. From February 19, 2021 through maturity on April 26, 2023, the rate fixed pursuant to interest rate hedges will increase to 0.97%, with a corresponding decrease in the Guarantee Fee rate, such that the all-in borrowing rate remains 3.50% if our net leverage ratio remains unchanged.
|
|
|
(2)
|
Based on the three month LIBOR of 1.91% as at December 31, 2019.
|
2023 Revolving Credit Facility
We had no balance outstanding under the US$ 75.0 million revolving credit facility (the “2023 Revolving Credit Facility”) as at December 31, 2019.
The 2023 Revolving Credit Facility bears interest at a rate per annum based on, at our option, an alternate base rate ("ABR Loans" as defined in the 2023 Revolving Credit Facility Agreement) plus the spread applicable to ABR Loans based on our consolidated net leverage or an amount equal to the greater of (i) an adjusted LIBO rate and (ii) 1.0%, plus the spread applicable to the Eurodollar Loans (as defined in the 2023 Revolving Credit Facility Agreement) based on our consolidated net leverage ratio (as defined in the Reimbursement Agreement), with all amounts payable in cash. The maturity date of the 2023 Revolving Credit Facility is April 26, 2023. When drawn, the 2023 Revolving Credit Facility permits prepayment at our option in whole or in part without penalty.
As at December 31, 2019, the following spreads were applicable:
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Leverage
|
Alternate Base Rate Loans
|
|
|
Eurodollar Loans
|
|
≥
|
7.0x
|
|
|
|
5.25
|
%
|
|
6.25
|
%
|
<
|
7.0x
|
-
|
6.0x
|
|
4.25
|
%
|
|
5.25
|
%
|
<
|
6.0x
|
-
|
5.0x
|
|
3.50
|
%
|
|
4.50
|
%
|
<
|
5.0x
|
-
|
4.0x
|
|
3.00
|
%
|
|
4.00
|
%
|
<
|
4.0x
|
-
|
3.0x
|
|
2.50
|
%
|
|
3.50
|
%
|
<
|
3.0x
|
|
|
|
2.25
|
%
|
|
3.25
|
%
|
The 2023 Revolving Credit Facility is guaranteed by CME BV and is secured by a pledge over 100% of the outstanding shares of CME BV. The 2023 Revolving Credit Facility agreement contains limitations on CME’s ability to incur indebtedness, incur guarantees, grant liens, pay dividends or make other distributions, enter into certain affiliate transactions, consolidate, merge or effect a corporate reconstruction, make certain investments acquisitions and loans, and conduct certain asset sales. The agreement also contains maintenance covenants in respect of interest cover and total leverage ratios, and has covenants in respect of incurring indebtedness, the provision of guarantees, making investments and disposals, granting security and certain events of defaults.
Other Credit Facilities and Finance Lease Obligations
Cash Pooling
We have a cash pooling arrangement with Bank Mendes Gans (“BMG”), a subsidiary of ING Bank N.V. (“ING”), which enables us to receive credit throughout the group in respect of cash balances which our subsidiaries deposit with BMG. Cash deposited by our subsidiaries with BMG is pledged as security against the drawings of other subsidiaries up to the amount deposited.
As at December 31, 2019, we had deposits of US$ 11.6 million in and no drawings on the BMG cash pool. Interest is earned on deposits at the relevant money market rate. As at December 31, 2018, we had deposits of US$ 36.8 million in and no drawings on the BMG cash pool.
Factoring Arrangements
Under a factoring framework agreement with Factoring Česka spořitelna, a.s., up to CZK 475.0 million (approximately US$ 21.0 million) of receivables from certain customers in the Czech Republic may be factored on a recourse or non-recourse basis. The facility has a factoring fee of 0.19% of any factored receivable and bears interest at one-month PRIBOR plus 0.95% per annum for the period that receivables are factored and outstanding.
Under a factoring framework agreement with Factoring KB, a.s., certain receivables in the Czech Republic may be factored on a non-recourse basis. The facility has a factoring fee of 0.11% of any factored receivable and bears interest at one-month PRIBOR plus 0.95% per annum for the period that receivables are factored and outstanding up to a maximum of 60 days from the due date.
Under a factoring framework agreement with Global Funds IFN S.A., receivables from certain customers in Romania may be factored on a non-recourse basis. The facility has a factoring fee of 4.0% of any factored receivable and bears interest at 6.0% per annum from the date the receivables are factored to the due date of the factored receivable.
As at December 31, 2019, and December 31, 2018, we had no outstanding liability balances on any of our factoring arrangements.
Finance Leases
For additional information on finance leases, see Note 11, "Leases"
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
5. PROGRAM RIGHTS
Program rights comprised the following at December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Program rights:
|
|
|
|
Acquired program rights, net of amortization
|
$
|
135,352
|
|
|
$
|
153,761
|
|
Less: current portion of acquired program rights
|
(75,909
|
)
|
|
(77,624
|
)
|
Total non-current acquired program rights
|
59,443
|
|
|
76,137
|
|
Produced program rights – Feature Films:
|
|
|
|
Released, net of amortization
|
504
|
|
|
653
|
|
Produced program rights – Television Programs:
|
|
|
|
Released, net of amortization
|
57,190
|
|
|
55,220
|
|
Completed and not released
|
16,578
|
|
|
8,347
|
|
In production
|
32,248
|
|
|
30,904
|
|
Development and pre-production
|
274
|
|
|
610
|
|
Total produced program rights
|
106,794
|
|
|
95,734
|
|
Total non-current acquired program rights and produced program rights
|
$
|
166,237
|
|
|
$
|
171,871
|
|
6. ACCOUNTS RECEIVABLE
Accounts receivable comprised the following at December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Third-party customers
|
$
|
197,166
|
|
|
$
|
203,068
|
|
Less: allowance for bad debts and credit notes
|
(8,548
|
)
|
|
(9,697
|
)
|
Total accounts receivable
|
$
|
188,618
|
|
|
$
|
193,371
|
|
Bad debt (release) / expense for the years ended December 31, 2019, 2018 and 2017 was US$ (2.5) million, US$ 0.8 million, and US$ 1.9 million, respectively.
7. OTHER ASSETS
Other current and non-current assets comprised the following at December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Current:
|
|
|
|
Prepaid acquired programming
|
$
|
27,237
|
|
|
$
|
29,918
|
|
Other prepaid expenses
|
12,775
|
|
|
9,119
|
|
VAT recoverable
|
7,775
|
|
|
1,702
|
|
Other
|
1,045
|
|
|
328
|
|
Total other current assets
|
$
|
48,832
|
|
|
$
|
41,067
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Non-current:
|
|
|
|
|
|
Capitalized debt costs (Note 4)
|
$
|
7,277
|
|
|
$
|
9,660
|
|
Deferred tax
|
2,261
|
|
|
2,411
|
|
Operating lease - right-of-use assets (Note 11)
|
11,682
|
|
|
—
|
|
Other
|
947
|
|
|
337
|
|
Total other non-current assets
|
$
|
22,167
|
|
|
$
|
12,408
|
|
Capitalized debt costs are being amortized over the term of the 2023 Revolving Credit Facility using the straight-line method, which approximates the effective interest method.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following at December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Land and buildings
|
$
|
100,502
|
|
|
$
|
100,574
|
|
Machinery, fixtures and equipment
|
212,810
|
|
|
206,491
|
|
Other equipment
|
36,007
|
|
|
35,022
|
|
Software
|
70,294
|
|
|
68,239
|
|
Construction in progress
|
4,774
|
|
|
4,663
|
|
Total cost
|
424,387
|
|
|
414,989
|
|
Less: accumulated depreciation
|
(310,486
|
)
|
|
(297,385
|
)
|
Total net book value
|
$
|
113,901
|
|
|
$
|
117,604
|
|
|
|
|
|
Assets held under finance leases (included in the above)
|
|
|
|
|
|
Land and buildings
|
$
|
3,914
|
|
|
$
|
3,989
|
|
Machinery, fixtures and equipment
|
31,961
|
|
|
25,414
|
|
Total cost
|
35,875
|
|
|
29,403
|
|
Less: accumulated depreciation
|
(15,799
|
)
|
|
(10,705
|
)
|
Total net book value
|
$
|
20,076
|
|
|
$
|
18,698
|
|
Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was US$ 33.5 million, US$ 32.9 million and US$ 31.3 million, respectively.
The movement in the net book value of property, plant and equipment during the years ended December 31, 2019 and 2018 was comprised of:
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
Opening balance
|
$
|
117,604
|
|
|
$
|
119,349
|
|
Additions (1)
|
32,348
|
|
|
36,737
|
|
Disposals
|
(29
|
)
|
|
(42
|
)
|
Depreciation
|
(33,536
|
)
|
|
(32,933
|
)
|
Foreign currency movements
|
(2,486
|
)
|
|
(5,507
|
)
|
Ending balance
|
$
|
113,901
|
|
|
$
|
117,604
|
|
(1) Includes assets acquired under finance leases. For additional information, see Note 11, "Leases"
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprised the following at December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Accounts payable and accrued expenses
|
$
|
56,343
|
|
|
$
|
48,708
|
|
Related party accounts payable
|
267
|
|
|
292
|
|
Programming liabilities
|
17,293
|
|
|
16,072
|
|
Related party programming liabilities
|
10,553
|
|
|
12,171
|
|
Duties and other taxes payable
|
9,426
|
|
|
9,014
|
|
Accrued staff costs(1)
|
24,027
|
|
|
17,425
|
|
Accrued interest payable
|
2,104
|
|
|
2,456
|
|
Related party accrued interest payable (including Guarantee Fees)
|
1,103
|
|
|
1,749
|
|
Income taxes payable
|
10,304
|
|
|
10,415
|
|
Other accrued liabilities
|
4,230
|
|
|
2,166
|
|
Total accounts payable and accrued liabilities
|
$
|
135,650
|
|
|
$
|
120,468
|
|
(1) Includes certain retention bonuses related to the proposed Merger agreed in 2019.
10. OTHER LIABILITIES
Other current and non-current liabilities comprised the following at December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Current:
|
|
|
|
Deferred revenue
|
$
|
9,451
|
|
|
$
|
9,906
|
|
Legal provisions
|
635
|
|
|
1,978
|
|
Operating lease liabilities (Note 11)
|
3,203
|
|
|
—
|
|
Other
|
226
|
|
|
1,795
|
|
Total other current liabilities
|
$
|
13,515
|
|
|
$
|
13,679
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Non-current:
|
|
|
|
|
|
Deferred tax
|
$
|
21,294
|
|
|
$
|
22,545
|
|
Derivative instruments (Note 12)
|
12,670
|
|
|
9,817
|
|
Related party Guarantee Fee payable (Note 4)
|
33,465
|
|
|
33,465
|
|
Operating lease liabilities (Note 11)
|
8,434
|
|
|
—
|
|
Other
|
4,137
|
|
|
1,466
|
|
Total other non-current liabilities
|
$
|
80,000
|
|
|
$
|
67,293
|
|
During the years ended December 31, 2019, 2018 and 2017, we recognized revenue of US$ 9.7 million, US$ 5.4 million and US$ 4.9 million which we had deferred as at December 31, 2018, 2017 and 2016, respectively.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
11. LEASES
We enter into operating and finance leases for offices, production and related facilities, cars and certain equipment. Our leases have remaining lease terms up to ten years.
The components of lease cost for the year ended December 31, 2019 were as follows:
|
|
|
|
|
Operating lease cost:
|
|
Short-term operating lease cost
|
$
|
6,046
|
|
Long-term operating lease cost
|
4,600
|
|
Total operating lease cost
|
$
|
10,646
|
|
|
|
Finance lease cost:
|
|
Amortization of right-of-use asset
|
$
|
5,894
|
|
Interest on lease liabilities
|
355
|
|
Total finance lease cost
|
$
|
6,249
|
|
The classification of cash flows related to our leases for the year ended December 31, 2019 was as follows:
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
4,432
|
|
Operating cash flows from finance leases
|
362
|
|
Financing cash flows from finance leases
|
7,097
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
Operating leases
|
$
|
3,802
|
|
Finance leases
|
5,753
|
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Our current and non-current assets and liabilities related to our leasing arrangements comprised the following at December 31, 2019:
|
|
|
|
|
Operating Leases
|
|
Operating lease right-of-use-assets, gross
|
$
|
15,396
|
|
Accumulated amortization
|
(3,714
|
)
|
Operating lease right-of-use-assets, net
|
$
|
11,682
|
|
|
|
Other current liabilities
|
$
|
3,203
|
|
Other non-current liabilities
|
8,434
|
|
Total operating lease liabilities
|
$
|
11,637
|
|
|
|
Finance Leases
|
|
Property, plant and equipment, gross
|
$
|
35,875
|
|
Accumulated depreciation
|
(15,799
|
)
|
Property, plant and equipment, net
|
$
|
20,076
|
|
|
|
Current portion of long-term debt and other financing arrangements
|
$
|
6,836
|
|
Long-term debt and other financing arrangements
|
9,496
|
|
Total finance lease liabilities
|
$
|
16,332
|
|
|
|
Weighted Average Remaining Lease Term
|
Years
|
|
Operating leases
|
4.9
|
|
Finance leases
|
2.7
|
|
|
|
Weighted Average Discount Rate
|
Discount Rate
|
|
Operating leases
|
4.7
|
%
|
Finance leases
|
2.1
|
%
|
Our lease liabilities had the following maturities at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
Finance Leases
|
|
2020
|
$
|
3,659
|
|
|
$
|
7,109
|
|
2021
|
3,015
|
|
|
5,645
|
|
2022
|
2,248
|
|
|
2,914
|
|
2023
|
1,467
|
|
|
1,137
|
|
2024
|
888
|
|
|
—
|
|
2025 and thereafter
|
1,859
|
|
|
—
|
|
Total undiscounted payments
|
13,136
|
|
|
16,805
|
|
Less: amount representing interest
|
(1,499
|
)
|
|
(473
|
)
|
Present value of net minimum lease payments
|
$
|
11,637
|
|
|
$
|
16,332
|
|
12. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
ASC 820, "Fair Value Measurements and Disclosure", establishes a hierarchy that prioritizes the inputs to those valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:
Basis of Fair Value Measurement
|
|
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted instruments.
|
|
|
Level 2
|
Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
|
|
|
Level 3
|
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
We evaluate the position of each financial instrument measured at fair value in the hierarchy individually based on the valuation methodology we apply. The carrying amount of financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value due to the short-term nature of these items. The fair value of our long-term debt is included in Note 4, "Long-term Debt and Other Financing Arrangements".
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Hedging Activities
Cash Flow Hedges of Interest Rate Risk
We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on the outstanding principal amount of the Euro Loans. These interest rate swaps provide us with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount. These instruments are carried at fair value on our consolidated balance sheets as other current and other non-current liabilities based on their maturity.
We value the interest rate swap agreements using a valuation model which calculates the fair value on the basis of the net present value of the estimated future cash flows. The most significant input used in the valuation model is the expected EURIBOR-based yield curve. These instruments were allocated to Level 2 of the fair value hierarchy because the critical inputs to this model, including current interest rates, relevant yield curves and the known contractual terms of the instruments, were readily observable.
As at December 31, 2019, each instrument is fully designated as a cash flow hedge. All changes in the fair value of these instruments are recorded in accumulated other comprehensive income / loss and subsequently reclassified to interest expense when the hedged item affects earnings.
Information relating to financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Date
|
|
Number of Contracts
|
|
|
Aggregate Notional Amount
|
|
|
Maturity Date
|
|
Objective
|
|
Fair Value as at December 31, 2019
|
|
April 26, 2018
|
|
3
|
|
|
EUR
|
60,335
|
|
|
November 1, 2021
|
|
Interest rate hedge underlying 2021 Euro Loan
|
|
$
|
(585
|
)
|
April 5, 2016
|
|
5
|
|
|
EUR
|
468,800
|
|
|
February 19, 2021
|
|
Interest rate hedge underlying 2023 Euro Loan
|
|
$
|
(1,672
|
)
|
April 26, 2018
|
|
4
|
|
|
EUR
|
468,800
|
|
|
April 26, 2023
|
|
Interest rate hedge underlying 2023 Euro Loan, forward starting on February 19, 2021
|
|
$
|
(10,413
|
)
|
Foreign Currency Risk
From time to time, we have entered into forward foreign exchange contracts to reduce our exposure to movements in foreign exchange rates related to contractual payments under certain dollar-denominated agreements. We had no such agreements outstanding during the year ended December 31, 2019.
Fair Value of Derivatives
The change in fair value of derivatives not recognized within accumulated other comprehensive income / loss comprised the following for the years ended December 31, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Loss on currency swaps
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,380
|
)
|
Loss on interest rate swaps
|
(201
|
)
|
|
(1,715
|
)
|
|
(403
|
)
|
Change in fair value of derivatives
|
$
|
(201
|
)
|
|
$
|
(1,715
|
)
|
|
$
|
(1,783
|
)
|
13. CONVERTIBLE REDEEMABLE PREFERRED SHARES
200,000 shares of our Series B Convertible Redeemable Preferred Stock, par value US$ 0.08 per share (the “Series B Preferred Shares”) were issued and outstanding as at December 31, 2019 and 2018. The Series B Preferred Shares are held by Time Warner Media Holdings B.V. ("TW Investor"), a wholly owned subsidiary of AT&T. As at December 31, 2019 and 2018, the accreted value of the Series B Preferred Shares was US$ 269.4 million. The Series B Preferred Shares have a stated value of US$ 1,000 per share and no longer accrete subsequent to June 24, 2018. As of December 31, 2019, the 200,000 shares of Series B preferred stock were convertible into approximately 111.1 million shares of Class A common stock.
Pursuant to the Certificate of Designation of the Series B Preferred Shares, each Series B Preferred Share may, at the holder's option, be converted into the number of shares of our Class A common stock determined by dividing (i) the accreted stated value plus accrued but unpaid dividends, if any, in each case as of the conversion date, by (ii) the conversion price, which was approximately US$ 2.42 at December 31, 2019, but is subject to adjustment from time to time pursuant to customary weighted-average anti-dilution provisions with respect to our issuances of equity or equity-linked securities at a price below the then-applicable conversion price (excluding any securities issued under our benefit plans at or above fair market value). We have the right to redeem the Series B Preferred Shares in whole or in part upon 30 days' written notice. The redemption price of each outstanding Series B Preferred Share is equal to its accreted stated value plus accrued but unpaid dividends, if any, in each case as of the redemption date specified in the redemption notice. After receipt of a redemption notice, each holder of Series B Preferred Shares will have the right to convert, prior to the date of redemption, all or part of such Series B Preferred Shares to be redeemed by us into shares of our Class A common stock in accordance with the terms of conversion described above.
Holders of the Series B Preferred Shares have no voting rights on any matter presented to holders of any class of our capital stock, with the exception that they may vote with holders of shares of our Class A common stock (i) with respect to a change of control event or (ii) as provided by our Bye-laws or applicable Bermuda law. Holders of Series B Preferred Shares will participate in any dividends declared or paid on our Class A common stock on an as-converted basis. The Series B Preferred Shares will rank pari passu with our Series A Convertible Preferred Stock and senior to all other equity securities of the Company in respect of payment of dividends and distribution of assets upon liquidation. The Series B Preferred Shares have such other rights, powers and preferences as are set forth in the Certificate of Designation for the Series B Preferred Shares.
The Series B Preferred Shares are not considered a liability and the embedded conversion feature does not require bifurcation. The Series B Preferred Shares are classified outside of permanent equity at redemption value. For the years ended December 31, 2018 and 2017, we recognized accretion on the Series B Preferred Shares of US$ 4.8 million and US$ 9.7 million, respectively, with corresponding decreases in additional paid-in capital.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
14. EQUITY
Preferred Stock
5,000,000 shares of Preferred Stock were authorized as at December 31, 2019 and 2018.
One share of Series A Convertible Preferred Stock (the "Series A Preferred Share") was issued and outstanding as at December 31, 2019 and 2018. Pursuant to the Certificate of Designation, the Series A Preferred Share is convertible into 11,211,449 shares of Class A common stock on the date that is 61 days after the date on which the ownership of our outstanding shares of Class A common stock by a group that includes TW Investor and its affiliates would not be greater than 49.9%. The Series A Preferred Share is entitled to one vote per each share of Class A common stock into which it is convertible and has such other rights, powers and preferences, including potential adjustments to the number of shares of Class A common stock to be issued upon conversion, as are set forth in the Certificate of Designation for the Series A Preferred Share.
200,000 shares of Series B Preferred Shares were issued and outstanding as at December 31, 2019 and 2018 (see Note 13, "Convertible Redeemable Preferred Shares"). As of December 31, 2019, the 200,000 Series B Preferred Shares were convertible into approximately 111.1 million shares of Class A common stock.
Class A and Class B Common Stock
440,000,000 shares of Class A common stock and 15,000,000 shares of Class B common stock were authorized as at December 31, 2019 and 2018. The rights of the holders of Class A common stock and Class B common stock are identical except for voting rights. The shares of Class A common stock are entitled to one vote per share and the shares of Class B common stock are entitled to ten votes per share. Shares of Class B common stock are convertible into shares of Class A common stock on a one-for-one basis for no additional consideration and automatically convert into shares of Class A common stock on a one-for-one basis when the number of shares of Class B common stock is less than 10% of the total number of shares of common stock outstanding. Holders of each class of shares are entitled to receive dividends and upon liquidation or dissolution are entitled to receive all assets available for distribution to holders of our common stock. Under our Bye-laws, the holders of each class have no pre-emptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.
There were 253.6 million and 252.9 million shares of Class A common stock outstanding at December 31, 2019 and 2018, respectively, and no shares of Class B common stock outstanding at December 31, 2019 or 2018.
As at December 31, 2019, TW Investor owns 64% of the outstanding shares of Class A common stock. In connection with the exercise of warrants (described below) by Warner Media and TW Investor in April 2018, each of them issued standing proxies to the independent directors of the Company, pursuant to which they granted the independent directors the right to vote the approximately 100.9 million shares of Class A common stock received on the exercise of those warrants (the “Warrant Shares”) on all matters other than at any general meeting where the agenda includes a change in control transaction. In accordance with these proxies, the Warrant Shares will be voted in proportion to votes cast at such a general meeting of the Company, excluding such Warrant Shares. Warner Media and TW Investor have undertaken to maintain this proxy arrangement in effect until April 2020 and may at their option extend it for an additional year from that date. After giving effect to its ownership of the Series A Preferred Share, Warner Media has a 44.3% voting interest in the Company at any meeting where the Warrant Shares are voted pursuant to the standing proxies.
Accumulated Other Comprehensive Loss
The movement in accumulated other comprehensive loss during the years ended December 31, 2019, 2018 and 2017 comprised the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
BALANCE, beginning of year
|
$
|
(216,650
|
)
|
|
$
|
(187,438
|
)
|
|
$
|
(243,988
|
)
|
|
|
|
|
|
|
Currency translation adjustment, net
|
|
|
|
|
|
Balance, beginning of year
|
$
|
(207,668
|
)
|
|
$
|
(184,256
|
)
|
|
$
|
(239,537
|
)
|
Foreign exchange gain / (loss) on intercompany loans (1)
|
2,519
|
|
|
(1,061
|
)
|
|
11,326
|
|
Foreign exchange (loss) / gain on the Series B Preferred Shares
|
(5,129
|
)
|
|
(12,527
|
)
|
|
33,444
|
|
Currency translation adjustments
|
(3,677
|
)
|
|
(9,824
|
)
|
|
10,511
|
|
Balance, end of year
|
$
|
(213,955
|
)
|
|
$
|
(207,668
|
)
|
|
$
|
(184,256
|
)
|
|
|
|
|
|
|
Unrealized loss on derivative instruments designated as hedging instruments
|
|
|
|
|
|
Balance, beginning of year
|
$
|
(8,982
|
)
|
|
$
|
(3,182
|
)
|
|
$
|
(4,451
|
)
|
Change in the fair value of hedging instruments
|
(5,870
|
)
|
|
(9,455
|
)
|
|
(1,942
|
)
|
Amounts reclassified from accumulated other comprehensive loss:
|
|
|
|
|
|
Changes in fair value of hedging instruments reclassified to interest expense
|
1,726
|
|
|
2,220
|
|
|
2,764
|
|
Changes in fair value of hedging instruments reclassified to other non-operating expense, net
|
165
|
|
|
1,435
|
|
|
447
|
|
Balance, end of year
|
$
|
(12,961
|
)
|
|
$
|
(8,982
|
)
|
|
$
|
(3,182
|
)
|
|
|
|
|
|
|
BALANCE, end of year
|
$
|
(226,916
|
)
|
|
$
|
(216,650
|
)
|
|
$
|
(187,438
|
)
|
|
|
(1)
|
Represents foreign exchange gains and losses on intercompany loans that are of a long-term investment nature which are reported in the same manner as translation adjustments.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
15. INTEREST EXPENSE
Interest expense comprised the following for the years ended December 31, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Interest on long-term debt and other financing arrangements
|
$
|
27,308
|
|
|
$
|
44,604
|
|
|
$
|
77,170
|
|
Amortization of capitalized debt issuance costs
|
3,386
|
|
|
4,502
|
|
|
6,018
|
|
Total interest expense
|
$
|
30,694
|
|
|
$
|
49,106
|
|
|
$
|
83,188
|
|
We paid cash interest (including mandatory cash-pay Guarantee Fees) of US$ 26.7 million, US$ 43.4 million and US$ 47.2 million during the years ended December 31, 2019, 2018 and 2017, respectively.
16. OTHER NON-OPERATING INCOME / EXPENSE, NET
Other non-operating income / expense, net comprised the following for the years ended December 31, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Interest income
|
$
|
467
|
|
|
$
|
725
|
|
|
$
|
536
|
|
Foreign currency exchange (loss) / gain, net
|
(2,376
|
)
|
|
(2,691
|
)
|
|
17,761
|
|
Change in fair value of derivatives (Note 12)
|
(201
|
)
|
|
(1,715
|
)
|
|
(1,783
|
)
|
Loss on extinguishment of debt
|
(340
|
)
|
|
(415
|
)
|
|
(101
|
)
|
Other income, net
|
242
|
|
|
508
|
|
|
428
|
|
Total other non-operating (expense) / income, net
|
$
|
(2,208
|
)
|
|
$
|
(3,588
|
)
|
|
$
|
16,841
|
|
17. STOCK-BASED COMPENSATION
Subsequent to the amendment approved at our Annual General Meeting on May 20, 2019, our 2015 Stock Incentive Plan (the "2015 Plan") has 16,000,000 shares of Class A common stock authorized for grants of stock options, restricted stock units ("RSU"), restricted stock and stock appreciation rights to employees and non-employee directors. Under the 2015 Plan, awards are made to employees and directors at the discretion of the Compensation Committee.
For the years ended December 31, 2019, 2018 and 2017, we recognized charges for stock-based compensation of US$ 4.2 million, US$ 7.1 million and US$ 4.4 million, respectively, presented as a component of selling, general and administrative expenses in our consolidated statements of operations and comprehensive income / loss. Stock-based compensation expense recognized during the year ended December 31, 2018 includes US$ 2.9 million related to the accelerated vesting of RSUs with performance conditions in accordance with the terms of the corresponding award agreement following the completion of sale of the Company's Croatian operations on July 31, 2018.
Stock Options
Grants of options allow the holders to purchase shares of Class A common stock at an exercise price, which is generally the market price prevailing at the date of the grant, with vesting between one and four years after the awards are granted. There was no option activity during the years ended December 31, 2019, 2018 and 2017. The summary of stock options outstanding as at December 31, 2019 and December 31, 2018 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price per Share
|
|
|
Weighted Average Remaining Contractual Term (years)
|
|
Aggregate Intrinsic Value
|
|
Outstanding at December 31, 2018
|
2,011,392
|
|
|
$
|
2.32
|
|
|
6.58
|
|
$
|
916
|
|
Outstanding at December 31, 2019
|
2,011,392
|
|
|
$
|
2.32
|
|
|
5.58
|
|
$
|
4,436
|
|
Vested or expected to vest at December 31, 2019
|
2,011,392
|
|
|
$
|
2.32
|
|
|
5.58
|
|
$
|
4,436
|
|
Exercisable at December 31, 2019
|
1,908,544
|
|
|
$
|
2.32
|
|
|
5.55
|
|
$
|
4,223
|
|
When options are vested, holders may exercise them at any time up to the maximum contractual life of the instrument which is specified in the option agreement. At December 31, 2019, the maximum life of options that were issued under the 2015 Plan was ten years. Upon providing the appropriate written notification, holders pay the exercise price and receive shares. Shares delivered in respect of stock options are newly issued shares.
The aggregate intrinsic value (the difference between the stock price on the last day of trading of the fourth quarter of 2019 and the exercise prices multiplied by the number of in-the-money options) represents the total intrinsic value that would have been received by the option holders had they exercised all in-the-money options as at December 31, 2019. This amount changes based on the fair value of our Class A common stock. All unvested stock options at December 31, 2019 will vest in March 2020.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Restricted Stock Units with Time-Based Vesting
Each RSU represents a right to receive one share of Class A common stock of the Company for each RSU that vests in accordance with a time-based vesting schedule, generally between one to four years from the date of grant. Holders of RSU awards are not entitled to receive cash dividend equivalents prior to the vesting of awards and are not entitled to vote shares underlying awards.
The following table summarizes information about unvested RSUs as at December 31, 2019:
|
|
|
|
|
|
|
|
|
Number of
Shares / Units
|
|
|
Weighted-Average
Grant Date Fair Value
|
|
Unvested at December 31, 2018
|
1,996,355
|
|
|
$
|
3.68
|
|
Granted
|
1,191,586
|
|
|
3.57
|
|
Vested
|
(855,260
|
)
|
|
3.49
|
|
Unvested at December 31, 2019
|
2,332,681
|
|
|
$
|
3.69
|
|
The intrinsic value of unvested RSUs was US$ 10.6 million as at December 31, 2019. Total unrecognized compensation cost related to unvested RSUs as at December 31, 2019 was US$ 5.9 million and is expected to be recognized over a weighted-average period of 2.2 years.
Restricted Stock Units with Performance Conditions
Each RSU with performance conditions (“PRSU”) represents a right to receive one share of Class A common stock of the Company for each PRSU that vests in accordance with a performance-based vesting schedule. The performance-based vesting schedule sets forth specified objectives for unlevered free cash flow and OIBDA over defined periods and by defined dates. Holders of PRSU awards are not entitled to receive cash dividend equivalents prior to the vesting of awards and are not entitled to vote shares underlying awards.
On December 4, 2018, the 2018 PRSU Award was granted with unlevered free cash flow and OIBDA targets corresponding to two, three and four-year performance periods ended December 31, 2020, 2021 and 2022, respectively. The maximum achievement under the 2018 PRSU Award is 200% of the shares allotted to the corresponding target. At December 31, 2019 and 2018, there were 501,572 unvested shares with a weighted-average grant date fair value of US$ 3.19. There were no new awards granted or vested and we recognized US$ 0.2 million of related compensation cost during the year ended December 31, 2019 in respect of performance targets considered probable of being achieved.
The intrinsic value of unvested PRSUs was US$ 2.3 million as at December 31, 2019. Total unrecognized compensation cost related to unvested PRSUs as at December 31, 2019 was US$ 1.4 million of which US$ 0.2 million is related to performance targets currently considered probable of being achieved and will be recognized over a period of 1.2 years.
18. INCOME TAXES
As our investments are predominantly owned by Dutch holding companies, the components of the provision for income taxes and of the income / (loss) before tax have been analyzed between their Netherlands and non-Netherlands components. Similarly, the Dutch corporate income tax rates have been used in the reconciliation of income taxes.
Income from continuing operations before income taxes
The Netherlands and non-Netherlands components of income from continuing operations before income taxes are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Domestic
|
$
|
(19,557
|
)
|
|
$
|
(38,434
|
)
|
|
$
|
(50,344
|
)
|
Foreign
|
173,991
|
|
|
163,327
|
|
|
123,911
|
|
Total
|
$
|
154,434
|
|
|
$
|
124,893
|
|
|
$
|
73,567
|
|
Total tax provision for the years ended December 31, 2019, 2018 and 2017 was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Income tax provision from continuing operations
|
$
|
(35,226
|
)
|
|
$
|
(27,828
|
)
|
|
$
|
(22,504
|
)
|
Income tax provision from discontinued operations
|
—
|
|
|
(1,423
|
)
|
|
(1,226
|
)
|
Total tax provision
|
$
|
(35,226
|
)
|
|
$
|
(29,251
|
)
|
|
$
|
(23,730
|
)
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Provision for Income Taxes
The Netherlands and non-Netherlands components of the provision for income taxes from continuing operations consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Current income tax provision:
|
|
|
|
|
|
Domestic
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign
|
(35,973
|
)
|
|
(25,308
|
)
|
|
(22,273
|
)
|
|
(35,973
|
)
|
|
(25,308
|
)
|
|
(22,273
|
)
|
Deferred tax provision:
|
|
|
|
|
|
Domestic
|
—
|
|
|
—
|
|
|
—
|
|
Foreign
|
747
|
|
|
(2,520
|
)
|
|
(231
|
)
|
|
747
|
|
|
(2,520
|
)
|
|
(231
|
)
|
Provision for income taxes
|
$
|
(35,226
|
)
|
|
$
|
(27,828
|
)
|
|
$
|
(22,504
|
)
|
Reconciliation of Effective Income Tax Rate
The following is a reconciliation of income taxes, calculated at statutory Netherlands rates, to the provision for income taxes included in the accompanying consolidated statements of operations and comprehensive income / loss for the years ended December 31, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Income taxes at Netherlands rates (25%)
|
$
|
(38,596
|
)
|
|
$
|
(31,206
|
)
|
|
$
|
(18,378
|
)
|
Jurisdictional differences in tax rates
|
7,863
|
|
|
10,384
|
|
|
7,303
|
|
Non-deductible interest
|
—
|
|
|
(2,455
|
)
|
|
(248
|
)
|
Losses expired
|
(12,196
|
)
|
|
(7,111
|
)
|
|
(7,583
|
)
|
Change in valuation allowance (1)
|
3,139
|
|
|
26,042
|
|
|
(6,242
|
)
|
Unrecognized tax benefits
|
—
|
|
|
1,077
|
|
|
—
|
|
Effect of change in tax rate (1)
|
5,000
|
|
|
(21,982
|
)
|
|
—
|
|
Non-deductible expenses
|
(872
|
)
|
|
(879
|
)
|
|
207
|
|
Other
|
436
|
|
|
(1,698
|
)
|
|
2,437
|
|
Provision for income taxes
|
$
|
(35,226
|
)
|
|
$
|
(27,828
|
)
|
|
$
|
(22,504
|
)
|
|
|
(1)
|
The effect of change in tax rate in 2019 and 2018 is the impact of tax rates enacted in the Netherlands on the tax benefit of loss carry-forwards.
|
In 2017, the net provision for income taxes was more than the provision computed at statutory tax rates primarily due to losses on which no tax benefit has been received.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
Components of Deferred Tax Assets and Liabilities
The following table shows the significant components included in deferred income taxes as at December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Assets:
|
|
|
|
Tax benefit of loss carry-forwards and other tax credits
|
$
|
92,895
|
|
|
$
|
103,468
|
|
Programming rights
|
2,510
|
|
|
2,211
|
|
Property, plant and equipment
|
2,989
|
|
|
3,088
|
|
Accrued expenses
|
4,607
|
|
|
3,922
|
|
Other
|
7,101
|
|
|
2,997
|
|
Gross deferred tax assets
|
110,102
|
|
|
115,686
|
|
Valuation allowance
|
(98,915
|
)
|
|
(103,126
|
)
|
Net deferred tax assets
|
$
|
11,187
|
|
|
$
|
12,560
|
|
|
|
|
|
Liabilities:
|
|
|
|
Broadcast licenses, trademarks and customer relationships
|
$
|
(20,156
|
)
|
|
$
|
(21,979
|
)
|
Property, plant and equipment
|
(542
|
)
|
|
(293
|
)
|
Programming rights
|
(4,491
|
)
|
|
(5,123
|
)
|
Tax payable on potential distribution of reserves
|
(5,031
|
)
|
|
(4,379
|
)
|
Other
|
—
|
|
|
(920
|
)
|
Total deferred tax liabilities
|
(30,220
|
)
|
|
(32,694
|
)
|
Net deferred income tax liability
|
$
|
(19,033
|
)
|
|
$
|
(20,134
|
)
|
Deferred tax is recognized on the consolidated balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Net non-current deferred tax assets
|
$
|
2,261
|
|
|
$
|
2,411
|
|
Net non-current deferred tax liabilities
|
(21,294
|
)
|
|
(22,545
|
)
|
Net deferred income tax liability
|
$
|
(19,033
|
)
|
|
$
|
(20,134
|
)
|
We provided a valuation allowance against potential deferred tax assets of US$ 98.9 million and US$ 103.1 million as at December 31, 2019 and 2018, respectively, since it has been determined by management, based on the weight of all available evidence, that it is more likely than not that the benefits associated with these assets will not be realized.
During 2019 and 2018, we had the following movements on valuation allowances:
|
|
|
|
|
Balance at December 31, 2017
|
$
|
133,477
|
|
Created during the period
|
100
|
|
Utilized
|
(26,142
|
)
|
Foreign exchange
|
(5,569
|
)
|
Other
|
1,260
|
|
Balance at December 31, 2018
|
103,126
|
|
Created during the period
|
3,773
|
|
Utilized
|
(6,912
|
)
|
Foreign exchange
|
(1,936
|
)
|
Other
|
864
|
|
Balance at December 31, 2019
|
$
|
98,915
|
|
As of December 31, 2019 we had operating loss carry-forwards that will expire in the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024-27
|
|
|
Indefinite
|
|
The Netherlands
|
$
|
47,688
|
|
|
$
|
50,014
|
|
|
$
|
53,674
|
|
|
$
|
57,042
|
|
|
$
|
209,378
|
|
|
$
|
—
|
|
Slovenia
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,810
|
|
United Kingdom
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,960
|
|
Total
|
$
|
47,688
|
|
|
$
|
50,014
|
|
|
$
|
53,674
|
|
|
$
|
57,042
|
|
|
$
|
209,378
|
|
|
$
|
11,770
|
|
The losses are subject to examination by the tax authorities and to restriction on their utilization. In particular, the losses can only be utilized against profits arising in the legal entity in which they arose. The utilization of the losses may also be restricted following a change of business activity.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
We have provided valuation allowances against substantially all of the above loss carry-forwards.
As at December 31, 2019 and 2018, we had no permanently reinvested earnings in subsidiaries giving rise to a temporary difference.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
Balance at December 31, 2017
|
$
|
1,052
|
|
Settlement
|
(1,077
|
)
|
Foreign exchange
|
25
|
|
Balance at December 31, 2018
|
$
|
—
|
|
We do not have any unrecognized tax benefits activity during the year ended December 31, 2019 and do not anticipate a material increase or decrease in unrecognized tax benefits within the next 12 months.
Our subsidiaries file income tax returns in the Netherlands and various other tax jurisdictions. As at December 31, 2019, our subsidiaries are generally no longer subject to income tax examinations for years before:
|
|
|
Tax Jurisdiction
|
Year
|
Bulgaria
|
2015
|
Czech Republic
|
2012
|
The Netherlands
|
2018
|
Romania
|
2014
|
Slovak Republic
|
2012
|
Slovenia
|
2014
|
United Kingdom
|
2018
|
We recognize, when applicable, both accrued interest and penalties related to unrecognized tax benefits in income tax expense in the accompanying consolidated statements of operations and comprehensive income / loss. There were no significant interest or penalties accrued in the years ended December 31, 2019, 2018 and 2017.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
19. EARNINGS PER SHARE
We determined that the Series B Preferred Shares are a participating security, and accordingly, our basic and diluted net income / loss per share is calculated using the two-class method. Under the two-class method, basic net income / loss per common share is computed by dividing the net income available to common shareholders after deducting contractual amounts of accretion on the Series B Preferred Shares and the income allocated to these shares by the weighted-average number of common shares outstanding during the period. Diluted net income / loss per share is computed by dividing the adjusted net income by the weighted-average number of dilutive shares outstanding during the period after adjusting for the impact of those dilutive shares on the allocation of income to the Series B Preferred Shares.
The components of basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Income from continuing operations
|
$
|
119,208
|
|
|
$
|
97,065
|
|
|
$
|
51,063
|
|
Net (income) / loss attributable to noncontrolling interests
|
(74
|
)
|
|
79
|
|
|
341
|
|
Less: preferred share accretion paid in kind (Note 13)
|
—
|
|
|
(4,777
|
)
|
|
(9,694
|
)
|
Less: income allocated to Series B Preferred Shares
|
(35,237
|
)
|
|
(29,956
|
)
|
|
(16,994
|
)
|
Income / (loss) from continuing operations available to common shareholders, net of noncontrolling interest
|
83,897
|
|
|
62,411
|
|
|
24,716
|
|
Income / (loss) from discontinued operations, net of tax
|
—
|
|
|
60,548
|
|
|
(1,636
|
)
|
Less: (income) / loss allocated to Series B Preferred Shares
|
—
|
|
|
(19,637
|
)
|
|
667
|
|
Net income attributable to CME Ltd. available to common shareholders — basic
|
83,897
|
|
|
103,322
|
|
|
23,747
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
Dilutive effect of employee stock options, RSUs and common stock warrants
|
148
|
|
|
3,653
|
|
|
3,829
|
|
Net income attributable to CME Ltd. available to common shareholders — diluted
|
$
|
84,045
|
|
|
$
|
106,975
|
|
|
$
|
27,576
|
|
|
|
|
|
|
|
Weighted average outstanding shares of common stock — basic (1)
|
264,611
|
|
|
230,562
|
|
|
155,846
|
|
Dilutive effect of employee stock awards and common stock warrants
|
1,587
|
|
|
27,132
|
|
|
80,558
|
|
Weighted average outstanding shares of common stock — diluted
|
266,198
|
|
|
257,694
|
|
|
236,404
|
|
|
|
|
|
|
|
Net income / (loss) per share:
|
|
|
|
|
|
Continuing operations — basic
|
$
|
0.32
|
|
|
$
|
0.27
|
|
|
$
|
0.16
|
|
Continuing operations — diluted
|
0.32
|
|
|
0.25
|
|
|
0.12
|
|
Discontinued operations — basic
|
—
|
|
|
0.18
|
|
|
(0.01
|
)
|
Discontinued operations — diluted
|
—
|
|
|
0.17
|
|
|
0.00
|
|
Attributable to CME Ltd. — basic
|
0.32
|
|
|
0.45
|
|
|
0.15
|
|
Attributable to CME Ltd. — diluted
|
0.32
|
|
|
0.42
|
|
|
0.12
|
|
|
|
(1)
|
For the purpose of computing basic earnings per share, the 11,211,449 shares of Class A common stock underlying the Series A Preferred Share are included in the weighted average outstanding shares of common stock - basic, because the rights of the Series A Preferred Share are considered substantially similar to that of our Class A common stock.
|
Weighted-average, equity awards and convertible shares are excluded from the calculation of diluted earnings per share if their effect would be anti-dilutive. The following instruments were anti-dilutive for the periods presented, but may be dilutive in future periods:
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
RSUs
|
376
|
|
|
1,506
|
|
|
144
|
|
Total
|
376
|
|
|
1,506
|
|
|
144
|
|
These instruments may become dilutive in the future. As set forth in the Certificate of Designation for the Series B Preferred Shares, the holders of our Series B Preferred Shares are not contractually obligated to share in our losses.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
20. SEGMENT DATA
We manage our business on a geographical basis, with five operating segments: Bulgaria, the Czech Republic, Romania, the Slovak Republic and Slovenia, which are also our reportable segments and our main operating countries. These segments reflect how CME Ltd.’s operating performance is evaluated by our chief operating decision makers, who we have identified as our co-Chief Executive Officers; how operations are managed by segment managers; and the structure of our internal financial reporting.
Our segments generate revenues primarily from the sale of advertising and sponsorship on our channels and digital properties. This is supplemented by revenues from cable and satellite television service providers that carry our channels on their platforms and from revenues through the sale of distribution rights to third parties. We do not rely on any single major customer or group of major customers. Intersegment revenues and profits have been eliminated in consolidation.
We evaluate our consolidated results and the performance of our segments based on net revenues and OIBDA (as defined below). We believe OIBDA is useful to investors because it provides a meaningful representation of our performance as it excludes certain items that either do not impact our cash flows or do not impact the operating results of our operations. OIBDA is also used as a component in determining management bonuses.
OIBDA includes amortization and impairment of program rights and is calculated as operating income / loss before depreciation, amortization of intangible assets, impairments of assets and certain unusual or infrequent items that are not considered by our chief operating decision makers when evaluating our performance.
Below are tables showing our net revenues, OIBDA, total assets, capital expenditures and long-lived assets for our continuing operations by segment for the years ended December 31, 2019, 2018 and 2017 for consolidated statements of operations and comprehensive income / loss data and consolidated statements of cash flow data; and as at December 31, 2019 and 2018 for consolidated balance sheet data.
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Bulgaria
|
$
|
83,406
|
|
|
$
|
84,593
|
|
|
$
|
77,341
|
|
Czech Republic
|
237,320
|
|
|
233,991
|
|
|
209,041
|
|
Romania
|
188,251
|
|
|
201,505
|
|
|
191,244
|
|
Slovak Republic
|
108,003
|
|
|
106,834
|
|
|
97,721
|
|
Slovenia
|
80,809
|
|
|
79,587
|
|
|
68,696
|
|
Intersegment revenues (1)
|
(2,985
|
)
|
|
(2,604
|
)
|
|
(1,175
|
)
|
Total net revenues
|
$
|
694,804
|
|
|
$
|
703,906
|
|
|
$
|
642,868
|
|
|
|
(1)
|
Reflects revenues earned from the sale of content to other country segments in CME Ltd. All other revenues are third party revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDA:
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Bulgaria
|
$
|
25,720
|
|
|
$
|
21,620
|
|
|
$
|
16,241
|
|
Czech Republic
|
101,617
|
|
|
94,576
|
|
|
82,652
|
|
Romania
|
87,727
|
|
|
85,737
|
|
|
73,418
|
|
Slovak Republic
|
35,350
|
|
|
27,941
|
|
|
23,845
|
|
Slovenia
|
26,395
|
|
|
22,516
|
|
|
14,263
|
|
Elimination
|
15
|
|
|
34
|
|
|
(3
|
)
|
Total operating segments
|
276,824
|
|
|
252,424
|
|
|
210,416
|
|
Corporate
|
(28,900
|
)
|
|
(29,750
|
)
|
|
(30,649
|
)
|
Total OIBDA
|
247,924
|
|
|
222,674
|
|
|
179,767
|
|
Depreciation of property, plant and equipment
|
(33,536
|
)
|
|
(32,933
|
)
|
|
(31,261
|
)
|
Amortization of broadcast licenses and other intangibles
|
(8,457
|
)
|
|
(9,002
|
)
|
|
(8,592
|
)
|
Other items (1)
|
(18,595
|
)
|
|
(3,152
|
)
|
|
—
|
|
Operating income
|
187,336
|
|
|
177,587
|
|
|
139,914
|
|
Interest expense (Note 15)
|
(30,694
|
)
|
|
(49,106
|
)
|
|
(83,188
|
)
|
Other non-operating (expense) / income, net (Note 16)
|
(2,208
|
)
|
|
(3,588
|
)
|
|
16,841
|
|
Income before tax
|
$
|
154,434
|
|
|
$
|
124,893
|
|
|
$
|
73,567
|
|
|
|
(1)
|
Other items during the year ended December 31, 2019 reflects costs relating to the strategic review and resulting proposed Merger, primarily the full recognition of executive employee retention agreements and financial and professional fees and is reflected in selling, general and administrative expenses in our consolidated statements of operations. Other items during the year ended December 31, 2018 consists solely of expense related to the accelerated vesting of RSUs with performance conditions in accordance with the terms of the corresponding award agreement following the completion of sale of the Company's Croatian operations on July 31, 2018.
|
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
|
|
|
|
|
|
|
|
|
Total assets: (1)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Bulgaria
|
$
|
135,593
|
|
|
$
|
142,165
|
|
Czech Republic
|
758,479
|
|
|
771,286
|
|
Romania
|
289,968
|
|
|
297,937
|
|
Slovak Republic
|
150,806
|
|
|
146,252
|
|
Slovenia
|
92,144
|
|
|
89,440
|
|
Total operating segments
|
1,426,990
|
|
|
1,447,080
|
|
Corporate
|
20,872
|
|
|
41,281
|
|
Total assets
|
$
|
1,447,862
|
|
|
$
|
1,488,361
|
|
|
|
(1)
|
Segment assets exclude any intercompany balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Bulgaria
|
$
|
6,023
|
|
|
$
|
4,222
|
|
|
$
|
4,584
|
|
Czech Republic
|
8,212
|
|
|
9,012
|
|
|
10,449
|
|
Romania
|
4,628
|
|
|
4,767
|
|
|
6,639
|
|
Slovak Republic
|
1,754
|
|
|
1,601
|
|
|
1,963
|
|
Slovenia
|
3,496
|
|
|
4,200
|
|
|
3,171
|
|
Total operating segments
|
24,113
|
|
|
23,802
|
|
|
26,806
|
|
Corporate
|
310
|
|
|
781
|
|
|
1,309
|
|
Total capital expenditures
|
$
|
24,423
|
|
|
$
|
24,583
|
|
|
$
|
28,115
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets: (1)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Bulgaria
|
$
|
13,538
|
|
|
$
|
10,627
|
|
Czech Republic
|
36,760
|
|
|
39,314
|
|
Romania
|
31,115
|
|
|
33,368
|
|
Slovak Republic
|
16,201
|
|
|
16,376
|
|
Slovenia
|
15,207
|
|
|
15,955
|
|
Total operating segments
|
112,821
|
|
|
115,640
|
|
Corporate
|
1,080
|
|
|
1,964
|
|
Total long-lived assets
|
$
|
113,901
|
|
|
$
|
117,604
|
|
|
|
(1)
|
Reflects property, plant and equipment, net.
|
Revenues from contracts with customers comprised the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue by type:
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Television advertising
|
$
|
547,524
|
|
|
$
|
562,450
|
|
|
$
|
523,516
|
|
Carriage fees and subscriptions
|
117,652
|
|
|
113,746
|
|
|
95,823
|
|
Other
|
29,628
|
|
|
27,710
|
|
|
23,529
|
|
Total net revenues
|
$
|
694,804
|
|
|
$
|
703,906
|
|
|
$
|
642,868
|
|
Management reviews the performance of our operations based on the above revenue types as well as on a geographic basis as described above. Management does not review other disaggregations of revenues from contracts with customers.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
21. COMMITMENTS AND CONTINGENCIES
Commitments
a) Programming Rights Agreements and Other Commitments
At December 31, 2019, we had total commitments of US$ 103.5 million (December 31, 2018: US$ 62.8 million) in respect of future programming, including contracts signed with license periods starting after the balance sheet date. In addition, we have digital transmission obligations and other commitments as follows:
|
|
|
|
|
|
|
|
|
|
Programming purchase obligations
|
|
|
Other commitments
|
|
2020
|
$
|
36,932
|
|
|
$
|
12,740
|
|
2021
|
24,944
|
|
|
5,705
|
|
2022
|
23,049
|
|
|
5,775
|
|
2023
|
11,601
|
|
|
5,900
|
|
2024
|
5,528
|
|
|
—
|
|
2025 and thereafter
|
1,452
|
|
|
—
|
|
Total
|
$
|
103,506
|
|
|
$
|
30,120
|
|
Contingencies
Litigation
We are from time to time party to legal proceedings, arbitrations and regulatory proceedings arising in the normal course of our business operations, including the proceeding described below. We evaluate, on a quarterly basis, developments in such matters and provide accruals for such matters, as appropriate. In making such decisions, we consider the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of a loss. An unfavorable outcome in any such proceedings, if material, could have an adverse effect on our business or consolidated financial statements.
In the fourth quarter of 2016, our Slovak subsidiary MARKIZA-SLOVAKIA, spol. s.r.o. ("Markiza") was notified of claims that were filed in June 2016 in a court of first instance in Bratislava, the Slovak Republic to collect amounts allegedly owing under four promissory notes that have a collective face value of approximately EUR 69.0 million. These four promissory notes were purportedly issued in June 2000 by Pavol Rusko in his personal capacity and were purportedly guaranteed by Markiza under the signature of Mr. Rusko, who was an executive director of Markiza at that time as well as one of its shareholders. Two of the notes purport to be issued in favor of Marian Kocner, a controversial Slovak businessman, and the other two to a long-time associate of Mr. Kocner. All four notes were supposedly assigned several times, for no apparent consideration, to companies owned by or associated with Mr. Kocner and ultimately to Sprava a inkaso zmeniek, s.r.o., a company owned by Mr. Kocner that initiated the claims for payment in these proceedings.
Two of the notes, each of which purportedly has a face value of approximately EUR 8.3 million, allegedly matured in 2015. The other two notes, which were purportedly issued in blank, had the amount of approximately EUR 26.2 million inserted on each of them by Mr. Kocner or someone associated with him in mid-2016, shortly before their alleged maturity. The four notes accrue interest from their purported maturity dates. Although Mr. Rusko has asserted in testimony in the civil proceedings that he signed the notes in June 2000, we do not believe that the notes were signed in June 2000 or that any of the notes are authentic.
Despite a random case assignment system in the Slovak Republic, claims in respect of three of the notes were initially assigned to the same judge. One of those claims, concerning one of the promissory notes having a face value of approximately EUR 8.3 million (the "First PN Case"), was subsequently reassigned. Proceedings on the claim in respect of the fourth promissory note (in the amount of approximately EUR 26.2 million) (the "Fourth PN Case") were initially terminated in January 2017 by the presiding judge because the plaintiff failed to pay court fees and were terminated a second time by a different presiding judge in September 2017 after the plaintiff refiled but failed to pay court fees a second time.
During the first quarter of 2018, the court of first instance began to schedule hearings in respect of the First PN Case in respect of the claims relating to the second promissory note having a face value of approximately EUR 8.3 million (the "Second PN Case") and one of the promissory notes having a face value of approximately EUR 26.2 million (the "Third PN Case").
On April 26, 2018, the judge in the First PN Case ruled in favor of the plaintiff. Markiza appealed that decision.
On May 14, 2018, Markiza filed a criminal complaint with the Special Prosecutor's Office of the Slovak Republic (the "Special Prosecutor’s Office") alleging that Mr. Kocner and Mr. Rusko committed the offenses of (1) counterfeiting, falsification, and illegal production of money and securities and (2) obstruction or perversion of justice. The Special Prosecutor’s Office opened criminal proceedings in the matter at that time.
On June 20, 2018, the Special Prosecutor’s Office issued a decision to formally charge Mr. Kocner and Mr. Rusko with counterfeiting, falsification, and illegal production of money and securities and with obstruction or perversion of justice. Following this decision, Mr. Kocner has been taken into pre-trial custody by the Slovak authorities, where he has remained. Subsequently, the Special Prosecutor’s Office has charged Mr. Kocner’s long-time associate, who received two of the alleged promissory notes as the original beneficial owner and purported to endorse those notes to a company controlled by Mr. Kocner, with counterfeiting, falsification, and illegal production of money and securities.
On October 12, 2018, the court of first instance terminated proceedings in respect of the Second PN Case because the plaintiff failed to pursue the claim, which the plaintiff appealed.
On December 14, 2018, the appellate court suspended proceedings in respect of the First PN Case until a final and enforceable decision has been rendered in the criminal proceedings.
On December 21, 2018, the appellate court reversed the decision of the court of first instance to terminate the Second PN Case and directed the case be tried on the merits.
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in US$ 000’s, except share and per share data)
On March 19, 2019, following the conclusion of the pre-trial investigation, the Special Prosecutor’s Office formally indicted Mr. Kocner and Mr. Rusko with counterfeiting, falsification, and illegal production of money and securities and with obstruction or perversion of justice and filed the indictment with the Special Criminal Court of the Slovak Republic.
On March 25, 2019, Markiza filed a complaint with the Slovak Constitutional Court in respect of the appellate court decision in the Second PN Case, which was accepted on October 2, 2019.
On May 14, 2019, the court of first instance decided to suspend proceedings in respect of the Second PN Case until a final and enforceable decision has been rendered in the criminal proceedings.
There have been no hearings held in respect of the Third PN Case since the initiation of the criminal proceedings. On May 14, 2019, the court of first instance decided to suspend proceedings in respect of the Third PN Case until a final and enforceable decision has been rendered in the criminal proceedings.
The plaintiff re-filed its claim with respect to the Fourth PN Case, which purportedly has a face value of approximately EUR 26.2 million, on May 13, 2019 and subsequently paid the requisite court fees. On June 6, 2019, the court of first instance decided to suspend proceedings in respect of the Fourth PN Case until a final and enforceable decision has been rendered in the criminal proceedings.
Accordingly, civil proceedings in respect of all four promissory notes have now been suspended until a final and enforceable decision is rendered in the criminal proceedings. Criminal proceedings commenced in July 2019 and are ongoing. The Special Criminal Court overseeing the criminal proceedings has scheduled hearing dates into mid-February 2020.
In the event any of the civil proceedings are not dismissed as a result of the successful conclusion of the criminal proceedings, Markiza will continue to vigorously defend the claims.
Based on the facts and circumstances of these cases, we have not accrued any amounts in respect of these claims.
22. RELATED PARTY TRANSACTIONS
We consider our related parties to be our officers, directors and shareholders who have direct control and/or influence over the Company as well as other parties that can significantly influence management. We have identified transactions with individuals or entities associated with AT&T, which is represented on our Board of Directors and holds a 44.3% voting interest in CME Ltd. (see Note 14, "Equity") as at December 31, 2019, as material related party transactions.
AT&T
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Cost of revenues
|
$
|
20,666
|
|
|
$
|
22,609
|
|
|
$
|
22,373
|
|
Interest expense
|
17,380
|
|
|
31,867
|
|
|
62,501
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Programming liabilities
|
$
|
10,553
|
|
|
$
|
12,171
|
|
Other accounts payable and accrued liabilities
|
267
|
|
|
292
|
|
Accrued interest payable (1)
|
1,103
|
|
|
1,749
|
|
Other non-current liabilities (2)
|
33,465
|
|
|
33,465
|
|
|
|
(1)
|
Amount represents accrued Guarantee Fees for which we have not yet paid. See Note 4, "Long-term Debt and Other Financing Arrangements".
|
|
|
(2)
|
Amount represents Guarantee Fees for which we had previously made an election to pay in kind. See Note 4, "Long-term Debt and Other Financing Arrangements".
|
23. QUARTERLY FINANCIAL DATA
Selected quarterly financial data for the years ended December 31, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2019
|
|
First Quarter (Unaudited)
|
|
Second Quarter (Unaudited)
|
|
Third Quarter (Unaudited)
|
|
Fourth Quarter (Unaudited)
|
Consolidated Statements of Operations and Comprehensive Income / Loss Data:
|
|
|
|
|
|
|
|
Net revenues
|
$
|
146,559
|
|
|
$
|
183,599
|
|
|
$
|
138,851
|
|
|
$
|
225,795
|
|
Cost of revenues
|
94,028
|
|
|
94,429
|
|
|
82,510
|
|
|
110,567
|
|
Operating income
|
27,637
|
|
|
60,462
|
|
|
30,783
|
|
|
68,454
|
|
Income from continuing operations
|
11,751
|
|
|
44,078
|
|
|
13,522
|
|
|
49,857
|
|
Net income
|
11,751
|
|
|
44,078
|
|
|
13,522
|
|
|
49,857
|
|
Net income attributable to CME Ltd.
|
11,758
|
|
|
43,959
|
|
|
13,745
|
|
|
49,672
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
Continuing operations — basic
|
$
|
0.03
|
|
|
$
|
0.12
|
|
|
$
|
0.04
|
|
|
$
|
0.13
|
|
Continuing operations — diluted
|
0.03
|
|
|
0.12
|
|
|
0.04
|
|
|
0.13
|
|
Attributable to CME Ltd. — basic
|
0.03
|
|
|
0.12
|
|
|
0.04
|
|
|
0.13
|
|
Attributable to CME Ltd. — diluted
|
0.03
|
|
|
0.12
|
|
|
0.04
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2018
|
|
First Quarter (Unaudited)
|
|
Second Quarter (Unaudited)
|
|
Third Quarter (Unaudited)
|
|
Fourth Quarter (Unaudited)
|
Consolidated Statements of Operations and Comprehensive Income / Loss Data:
|
|
|
|
|
|
|
|
Net revenues
|
$
|
156,709
|
|
|
$
|
181,908
|
|
|
$
|
137,038
|
|
|
$
|
228,251
|
|
Cost of revenues
|
103,670
|
|
|
104,997
|
|
|
84,588
|
|
|
114,850
|
|
Operating income
|
24,581
|
|
|
50,017
|
|
|
22,197
|
|
|
80,792
|
|
Income from continuing operations
|
6,756
|
|
|
23,675
|
|
|
10,609
|
|
|
56,025
|
|
Income from discontinued operations, net of tax
|
316
|
|
|
2,350
|
|
|
57,882
|
|
|
—
|
|
Net income
|
7,072
|
|
|
26,025
|
|
|
68,491
|
|
|
56,025
|
|
Net income attributable to CME Ltd.
|
7,250
|
|
|
26,041
|
|
|
68,571
|
|
|
55,830
|
|
|
|
|
|
|
|
|
|
Net (loss) / income per share (as adjusted):
|
|
|
|
|
|
|
|
Continuing operations — basic
|
$
|
0.02
|
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
0.15
|
|
Continuing operations — diluted
|
0.01
|
|
|
0.06
|
|
|
0.03
|
|
|
0.15
|
|
Discontinued operations — basic
|
0.00
|
|
|
0.01
|
|
|
0.15
|
|
|
—
|
|
Discontinued operations — diluted
|
0.00
|
|
|
0.00
|
|
|
0.15
|
|
|
—
|
|
Attributable to CME Ltd. — basic
|
0.02
|
|
|
0.07
|
|
|
0.18
|
|
|
0.15
|
|
Attributable to CME Ltd. — diluted
|
0.01
|
|
|
0.06
|
|
|
0.18
|
|
|
0.15
|
|